The significant expansion of global trade over time suggests that there are recognized benefits of trade, but there are also risks. The latter have come into more focus in recent years—for example, during the COVID-19 pandemic—as have terms like “decoupling,” “reshoring” and “friendshoring.”

I consulted Fernando Leibovici, an economic policy advisor in the St. Louis Fed’s Research Division, about the benefits and risks of trade as well as some potential ways for countries to mitigate those risks, which is where the terms mentioned above come in.

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Leibovici explained a few benefits of trade.

Comparative advantage

The standard view of international trade is that it is beneficial because it allows countries to specialize based on what they’re relatively good at producing, Leibovici said. Given that there are differences in how well countries produce different items, trade between two countries can lead to gains for both if they each specialize and trade what they produce.

As an example, say that the U.S. is good at producing a certain food relative to other goods and that France is good at producing wine relative to other goods. In other words, the U.S. has a comparative advantage in producing that food and France has a comparative advantage in producing wine. Trading food and wine between the two countries can lead to both being better off. The idea of specializing and trading based on comparative advantage goes back to the 1800s, and it has been an important driver of growth and development for many countries, Leibovici said.

Access to other goods

Trade allows people in different countries to access goods they otherwise wouldn’t be able to, Leibovici said. For instance, the production of some agricultural goods may require a certain type of land or climate, which means that countries would have to trade to acquire those goods they can’t produce themselves.

Risk sharing

Another benefit of trade that Leibovici mentioned is that it helps countries share risk, especially local risk. To illustrate, if a country had a major natural disaster that disrupted production of certain goods, the country may be able to obtain those goods from trading partners. In contrast, a fully closed economy—that is, one that doesn’t trade with anyone else—would be limited to what it has on its own.

Leibovici added, however, that a global shock, like the COVID-19 pandemic, would affect the country’s trading partners as well, potentially leaving them unable to help provide goods.

Some Risks of International Trade

While trade can help with local risk management, depending on other countries to access certain goods has led to growing concerns about the potential for disruptions in recent years, particularly when it comes to “critical goods,” Leibovici said during our discussion.

He explained those concerns in the St. Louis Fed’s 2022 annual report.

“Some goods are critical to economic activity and welfare even though they account for a small portion of aggregate output and consumption,” he said in the report, noting that dependence on international trade for such critical goods is a potential source of vulnerability for the U.S. economy.

“Geopolitical risk (such as war), reliance on risky trade partners and shocks to trade institutions can severely disrupt the short- and medium-run access of the U.S. economy to critical imported goods,” he wrote. During our conversation, Leibovici also cited shipping disruptions as another risk that may limit a country’s access to goods from other countries.

A key example of a critical good is semiconductors, which are used in the production of computers, toys, appliances, cars and many other goods, as Leibovici noted in the 2022 annual report. The U.S. is a net importer (i.e., imports exceed exports) of semiconductors, with Taiwan being a top source for U.S. imports of these goods. Semiconductor shortages in recent years have had notable effects across the globe, he wrote. (For more on the semiconductor industry, watch Leibovici’s 2023 video on the topic.)

Medical goods are another example; their critical nature became particularly clear during the pandemic. “Countries that relied heavily on imports of critical medical goods—such as personal protective equipment—found themselves at a distinct disadvantage when the pandemic created a sharp worldwide increase in the demand for these goods,” Leibovici and Ana Maria Santacreu, also an economic policy advisor, wrote in the St. Louis Fed’s 2020 annual report.

Possible Ways to Reduce Trade Risk

Even though trade is good in the long run, certain shocks can expose an economy to risks, especially if the imported goods are considered critical, Leibovici reiterated during our discussion. Some people suggest that increasing suppliers of these types of goods would be a way to lessen a country’s exposure to trade risks, he said.

He described some possible ways countries could go about diversifying trade. “Decoupling” refers generally to reducing trade with countries that could be potentially risky due to a variety of reasons, Leibovici explained. So, what might a country do if it has reduced its dependence on potentially risky countries for certain imports? Two possible options for accessing the goods Leibovici mentioned are:

• “Reshoring,” which refers to producing the goods domestically
• “Friendshoring,” which refers to increasing trade with countries that are trusted trading partners

In a January 2024 Economic Synopses essay, Leibovici and Jason Dunn, a senior research associate, examined the extent to which the U.S. has decoupled from China in recent years. They noted that the share of U.S. imports from China has declined from a peak in 2017. Focusing on critical sectors, they found that the largest reductions in imports from China were among those on which the U.S. was most dependent on China: communications and information technology.

“These findings suggest the US is on track to reduce its dependence on China in critical sectors that it relies on the most. However, significant exposure remains,” they wrote.

During my conversation with Leibovici, he noted that while changing suppliers—whether obtaining imports from a different country instead or producing the goods domestically—may reduce exposure to trade risk, it does have costs. For example, companies could have to make a big investment in order to produce something domestically, or the price of the goods could be higher from other countries for various reasons.

Ultimately, it isn’t clear how big these trade risks are or how much it would cost to adjust suppliers, or even what the best way to reduce risk would be while still reaping the benefits of shared production with other countries, he said.

For example, in his December 2023 video, Leibovici discussed how the U.S. might handle semiconductor supply to deal with the possibility of shocks from abroad. “At the end of the day, there’s a trade-off between efficiency and resiliency, and the U.S. has to decide how to balance out these two forces,” he said.

Kristie M. Engemann is a senior coordinator in the St. Louis Fed External Engagement and Corporate Communications Division. 

To read the full blog post as it appears on the website for the Federal Reserve Bank of St. Louis, click here. 

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Both sides have called this meeting productive and reports in the press suggest that, in the careful world of international diplomacy, it suggests Xi will attend a summit of Pacific Rim nations in San Francisco next month where he will meet face to face with U.S. President Joe Biden.

It’s all part and parcel of the diplomatic focus the U.S. government has trained on China since Balloon-Gate blew everything up earlier this year. U.S. Secretary of State Antony Blinken visited to help get everybody talking again. U.S. Treasury Secretary Janet Yellen established a pair of “economic working groups” with her counterparts. U.S. Commerce Secretary Gina Raimondo went to Shanghai Disneyland. Even John Kerry, the Biden administration’s envoy on climate change, was in Beijing this summer to talk with Chinese officials about how we’re all cooking the planet by continuing to burn fossil fuels.

But what made the Schumer delegation stand out was its bipartisanship. Sens. Mike Crapo (R-ID), John Kennedy (R-LA) and Bill Cassidy (R-LA) were part of the group, as were Sens. Maggie Hassan (D-NH) and John Ossoff (D-GA), and it provides further evidence that the American side wants Sino-U.S. relations to be less heated and more predictable. And this is not a terrible idea when you’re talking about interactions between nuclear-armed states with huge militaries and economies.

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Yes, that’s right. Donald Trump was many things, including hard to predict – here he is this past weekend, talking about “The Silence of the Lambs”, as one typically does during a campaign speech – but U.S. trade policy regarding China went through a necessary rearrangement during his administration, and the Section 301 tariffs enacted during his time in the White House are its chief result.  

The United States for years ran hundreds of billions of dollars in annual goods trade deficits with China. With the tariffs in place to provide some relief from Chinese import competition, and now with something like a bona fide industrial policy to complement them, the supply chains on which the U.S. relies have begun to diversify. There are factories – long term investments that will pay economic dividends for years to come – being built across the country. They represent the industries of the future, and it looks like they’re gonna be good union jobs. The tariffs laid the groundwork for that.

The Chinese government obviously doesn’t like these tariffs and wants them removed. The complaints against Chinese trade policy that raised them in the first place haven’t been addressed. China still heavily subsidizes key industries to the point of overcapacity, and looks likely to try to export its way out of its current economic doldrums.

And hey: Good luck with that! But the United States shouldn’t be the destination for those inevitably dumped imports. Make nice with the Chinese, engage with its leadership, sure. But the tariffs should stay up, and the U.S. should continue to improve its industrial resilience.

To read the full blog post, click here

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In 2018, the Trump administration initiated an investigation into China’s technology, intellectual property, and innovation practices under Section 301 of the Trade Act of 1974. The investigation found that Chinese acts and policies were burdening U.S. commerce, which prompted the U.S. Trade Representative (USTR) to impose tariffs worth more than $500 billion on imports from China. Our team has been closely tracking the effects of these tariffs, including gathering data on exclusion requests filed by U.S. importers and analyzing what the information can tell us. We received helpful input from The Lincoln Network as well.

There have been four tariff lists, or tranches, in the last four years. The tariffs were imposed on more than 10,000 product categories: 818 in tranche 1, 279 in tranche 2, 5,733 in tranche 3, and 3,207 in tranche 4A. Although tranche 4 was split into 4A and 4B, 4B tariffs were suspended as part of trade negotiations in 2019. The USTR also established the process by which interested parties could request exclusion from tariffs.

As for exclusion requests, since our last Section 301 update, the number filed hasn’t changed. As of September 6, 2021, importers had filed 52,746 product exclusion requests: 10,814 for tranche 1, 2,869 for tranche 2, 30,283 for tranche 3, and 8,780 for tranche 4A. Exclusions are valid for one year, at which point U.S. importers can apply for an extension.

The USTR has been reviewing extension requests and recently announced that it would reinstate Section 301 tariff exclusions for 352 products. To determine which imports would receive an exemption until the end of the year, the USTR reviewed whether products can be sourced from the United States or elsewhere.

In light of the recent USTR announcement and its impact on industries and workers, we are updating our Section 301 data and turning to sector-level analysis. This update focuses on consumer technology products. Consumer technology imports cover a wide range of products, such as clinical thermometers, gaming devices, drinking water coolers, and even tracking devices, representing a fairly large share of the goods targeted by the section 301 tariffs. In 2017 (the year before the tariffs were imposed), the customs value of consumer technology product imports was approximately $198 billion. We used a list of HTS codes derived from public comments filed by the Consumer Technology Association for our analysis.

Our key findings include:

1. Consumer technology product importers have been actively filing for exclusion requests. These U.S. importers have filed an exclusion request for 99% of their products that have been subject to the tariff.
    
2. Approval and denial outcomes for consumer technology product exclusion requests mirror overall product trends, with only 13% to 14% approved, and approval rates higher in the first two tranches than the third and fourth tranches.
    
3. Based on the 8-digit HTS codes for those consumer technology product imports on the section 301 list, China’s share of U.S. imports declined from 33.2% in 2017 to 19.4% in 2021. This is a larger change than seen in overall imports, for which China’s share declined from 22% to 18%. This may reflect the relatively large presence of consumer technology products in section 301 lists combined with USTR’s relatively high rate of denials for exclusion requests.
    
4. For the consumer technology products subject to the tariffs, there was some shifting from China to other countries, but not as much as policymakers may have hoped. China’s share of U.S. imports in the affected product areas declined from 35.8% to 27.5% over 2017 to 2021. Meanwhile, those shares increased for several Southeast Asian economies such as Vietnam, Taiwan, Thailand, South Korea, and Malaysia. Mexico’s share remained relatively flat.
    
5. Based on more detailed 10-digit HTS data (the level at which extensions are often granted), we find that approximately 40% of consumer technology product tariff exclusions received an extension.

Exclusions

As previously mentioned, consumer technology product importers have filed exclusion requests for 99% of the products that have been subject to the tariff (table 1), or 21,583 of the 21,896 consumer technology products. Overall, the outcomes for consumer technology product exclusion requests mirror statistics for other products (table 2). Of the 52,746 product exclusion requests, 6,802 (13%) were granted an exclusion and 45,944 (87%) were denied. For consumer technology products, there were 21,583 exclusion submissions, 3,097 (14%) of which were approved and 18,486 (86%) were denied.

Table 1. Consumer technology products subject to Section 301 tariffs: tariff exclusion requests filed and not filed (as of April 7, 2022)

Table 2. Summary tables: Outcomes for tariff exclusion requests

Table 3 reports the outcomes for exclusion requests for all products by tranche, while Table 4 reports the same data for consumer technology products.

Table 3. Outcomes for tariff exclusion requests: all products

Table 4. Outcomes for tariff exclusion requests: consumer technology products

Outcomes vary by tranche. Overall, the approval rating was 34% for tranche 1, 37% for tranche 2, 5% for tranche bodog poker review 3, and 7% for tranche 4A. Overall consumer product outcomes are similar, with the approval ratings of 29% for tranche 1, 40% for tranche 2, 6% for tranche 3, and 7% for tranche 4A.

Extensions

As USTR reviews requests extensions for tariff exclusions, the reasons or categories differ. Table 5 lists the number of consumer technology products granted an extension by decision category, including standard extensions granted, Covid-19 extensions, and reinstatements. A small share (2%-3%) of extensions for these products was Covid-related. The share of those reinstated increases over time. (These statistics are based on 10-digit HTS data and hence the absolute figures will not compare with those of the 8-digit-based statistics. We only did this to show the distribution of types of extensions, which had to be done at the 10-digit level.)

Table 5. Extensions granted for consumer technology products (calculated at the 10-digit level)

Overall, statistics based on 10-digit HTS indicate that 40% of consumer technology product exclusions granted received extension at some point since 2018.

Note that a product could have received an extension multiple times. For example, “Wireless communication apparatus that can receive audio data to be distributed to wireless speakers (described in statistical reporting number 8518.22.0000)” received an extension on both September 2, 2020, and March 28, 2022.

Some shifting of trade partners

Among consumer technology products subject to the tariffs, there was some shifting from China to other countries, but not as much as policymakers may have hoped. In this case, we use HTS 4-digit level codes to capture broader substitutions and product reclassifications. The data indicate that China’s share of U.S. imports declined from 35.8% to 27.5% over 2017 to 2021, or an 8.3 percentage point decrease. Yet China remained by far the largest import source, with Mexico relatively flat and a far second at 17.51% in 2021. Meanwhile, shares increased for Southeast Asian economies such as Vietnam, Taiwan, Thailand, South Korea, and Malaysia (figure 1).

Further analysis should include these calculations at the 4-, 6-, 8- and 10-digit levels in order to assess whether and to what extent product shifting within fairly detailed categories occurred (i.e., if there was a tariff on imported blue widgets with white polka dots from China, was there a consumer shift to blue widgets with red polka dots from China, or perhaps a shift to just plain blue widgets from Vietnam?).

Figure 1. Changes in US import shares in consumer technology product areas affected by setion 301 tariffs, 2017-2021

Conclusion

Exclusion outcomes for consumer technology products differed across tranches. The analysis could be extended to other sectors, especially given the recent changes in USTR reporting. Since the release of a Government Accountability Office (GAO) report, the USTR developed internal procedures that describe the process of determining which products qualify for a tariff exclusion. These changes may help policymakers to get a better understanding of the impact of Section 301 tariffs, though the reasons for USTR decisions on exclusions and extensions remain vague.

The U.S. International Trade Commission recently announced a new factfinding investigation that will examine the impact of the section 301 tariffs and the section 232 tariffs on steel and aluminum imports.

Also, the Office of the U.S. Trade Representative is about to commence a statutory four-year review of the Section 301 actions. That review will consider “the effectiveness [of the tariffs] in achieving the objectives.”

Beyond assessing changes in China’s intellectual property rights regime and technology transfer regime, it is not clear what criterion USTR will use to determine effectiveness. Questions that officials asked at the public hearings, however, often focused on whether there was existing domestic production or potential for domestic production, as well as the possibility of third-country sources. Finally, enough time has passed to allow for an assessment of downstream effects of the tariffs, as well as an assessment of whether and to what extent the tariffs spurred domestic production in the subject product area and/or a diversion to third party sources.

Christine McDaniel is a Senior Research Fellow at the Mercatus Center. Her research focuses on international trade, globalization, and intellectual property rights.

Polina Prokof’yeva is a second-year MA student in the Department of Economics at George Mason University. Polina graduated from Concord University with a BS in geography.

To read the full commentary by the Mercatus Center of George Mason University, please click here.

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THE NUMBERS: 

U.S. goods imports from China

Jan.-Feb. 2022        $90.1 billion
Jan.-Feb. 2018        $84.6 billion

WHAT THEY MEAN:

Reviewing her limited short-term options for easing inflation, Treasury Secretary Janet Yellen last week noted possible removal of Trump-era tariffs on Chinese goods. Three bits of background data on these tariffs, then some tentative conclusions:

1. Scale: Tariff System Roughly Doubled in Size: In 2017, the last full year before imposition of the administration’s “Section 232” and “Section 301” tariffs,* the U.S. tariff system brought in $32.9 billion in revenue on $2.34 trillion in imports. Dividing tariff revenue by import value, this yields a “trade-weighted” tariff average of 1.4%, though in a system (as PPI’s Ed Gresser noted in testimony last week) very unevenly weighted toward taxation of consumer goods and low-income families. By 2019, the administration had added to this system a battery of administratively imposed tariffs, including:  (a) “232” tariffs of 25% on steel and 10% on aluminum, valued in 2017 at about $50 billion; (b) “301” tariffs of 7.5%, 10%, and 25% on about $350 billion in Chinese goods, and (c) a few smaller decisions such as “201” or “safeguard” tariffs on washing machines and solar panels.

In 2021, all this brought in $85 billion on $2.83 trillion in imports, essentially doubling the overall U.S. tariff average to 2.9%. As of early 2022, the Biden administration has unwound some of the metals tariffs through agreements with the EU, Japan, and the U.K.; the tariffs on Chinese goods, though with some promise of a revived “exclusion” process for businesses especially damaged by extra tariff costs remain in place.

2. Effects on U.S. Imports from China Noticeable but Modest: China’s share of U.S. imports has dropped, but the actual value of imports from China is now above pre-tariff levels. More precisely, imports of Chinese-made and -assembled goods totaled $506 billion in 2017, or 21.6% of overall U.S. imports. The Chinese import total dropped temporarily after the 301 tariffs went into effect over the course of 2018 and early 2019, to $451 billion or 18.1% of a $2.493 trillion 2019 total. By 2021, though, they had rebounded to $505 billion — essentially equal to the figure for 2017, though this was a smaller share of a much expanded $2.83 trillion U.S. import total.**

3. Little if Any Effect on China’s Overall Exports: The larger “301” impact on China’s global trade seems very small. Statistics published by China’s Ministry of Commerce show Chinese worldwide exports at $2.42 trillion in pre-tariff 2017, then $2.66 trillion in 2018 and a slightly dented $2.64 trillion in 2019, followed by a post-COVID surge to $3.3 trillion in 2021. This suggests that any damage to China’s export economy was small and quickly healed.

4. U.S. Economy and Inflation: Finally, returning to the Treasury Secretary’s concerns and setting trade flows aside, tariffs are generally an unattractive form of taxation. This is because they not only directly raise the cost of imported goods as a sales or excise tax would, but in contrast to sales or excise taxes, they also enable rent-seeking price increases throughout the domestic economy. These neither increase supply nor move demand towards an equilibrium, and therefore have both growth-reducing and inflation-encouraging effects.

Taken as tax policy, the “232” tariffs on steel and aluminum raised metals-buyers’ tariff payments from $0.3 billion in 2017 to $3.2 billion in 2021, or by about $3 billion per year. The “301” tariffs are likewise focused on industrial inputs bought heavily by manufacturers and construction firms ($3 billion more on auto parts, $2.5 billion on electrical components, $1.1 billion on basic chemicals, and so on) and much more expensive. With Chinese import totals for 2017 and 2021 essentially identical, buyers paid $13.5 billion in tariffs in 2017, and $56.6 billion in 2021. Estimates of the 301 contribution to last year’s 7% spike in U.S. inflation range from 0.3% to 0.5% from higher import prices, to a more recent Peterson Institute estimate of 1.3% with domestic-price-raising effects included.

Hence Dr. Yellen’s interest. Her cautious comment on a potential decision to dial tariffs back: “There would be some desirable effects. It’s something we’re looking at.”

*  “232” and “301” stand for sections of U.S. trade law.  The 232 section enables Presidents to impose tariffs on ‘national security’ grounds; the 301 section enables them to impose tariffs as retaliation for overseas policies which impose a “significant burden on U.S. commerce”.

** On the other side of the trade-balance sheet, U.S. export trends to China followed a similar post-tariff-and-Chinese-retaliation track, dropping from $130 billion in 2017 to $106 billion in 2019, then rebounding to $151 billion in 2021.

***  Had China retained the 21.6% share imports it held in 2017, the 2021 total would have been around $600 billion.  (Assuming all else equal, of course.) Vietnam, whose exports to the U.S. jumped from $46 billion to $102 billion in these years, picked up about half of the missing $100 billion; secondary beneficiaries include India, Mexico, and a few other mid-income countries.

FURTHER READING

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It is extremely important for the future of the international trading system that the upcoming WTO Ministerial Conference be seen to be a success. Success can be achieved if all Members approach the Ministerial with a broad view of what is good for the system rather than what they seek more narrowly for themselves. Success will be achieved if the Members who unanimously backed an activist for the post of Director-General will now support her by crafting an agreed Declaration.

The Ministerial Conference will be a success if the agreed declaration is seen to improve international cooperation with respect to global health during this pandemic, and if that achievement is not marred by failure to agree to effective disciplines on the grant of fisheries subsidies. It will be a success if enough Members join together to address climate change and take ownership of their role as stewards of the planet’s environment. It will be a success if added to this is a path forward with respect to better rules for agriculture and addressing the growing problem of industrial subsidies.

The multilateral trading system, also called the world trading system, is, and always should be, a work in progress. It was started in the 1940s, proceeded through eight great rounds of multilateral trade negotiations in the half-century duration of the GATT 1947. The last two of these rounds added to the global trade rule book, as well as continuing the opening of markets.

The WTO, created in the Uruguay Round concluded in 1993/94, was a significant step in the process of building the global trading system. During the last twenty-six years, from 1995 when the WTO came into being, trade liberalization slowed in several respects. There were no successful rounds of across-the-board tariff cutting, no further opening of agricultural markets, and no additional disciplines on subsidies, either for agricultural commodities or industrial goods. While there was nothing accomplished on the scale of the last two GATT rounds, nevertheless there was additional progress in the form of a duty-free pharmaceutical agreement, a duty-free information technology agreement (with one subsequent update), a telecommunications reference paper, the Trade Facilitation Agreement, and a ban on agricultural export subsidies.

The advance continued but in a muted way at MC11 held in Buenos Aires in 2017. There were no commemorative T-shirts imprinted to celebrate MC11. There should have been, for at that meeting a way forward was found to continue the process of building the trading system. At Buenos Aires were born the Joint Statement Initiatives (JSIs), negotiations proceeding despite opposition from some WTO Members who did not wish to see the negotiating agenda expanded on these subjects. An important step forward had been taken.

What is needed as the MC12 outcome?

First, there must be an agreed declaration. If there is not, the system will deteriorate. It will not end, but it will evolve in a less coherent way. It will become less multilateral and less global. It is imperative that all participants understand what the stakes are.

What should be in an agreed declaration?

We know by now what the outlines of the possible outcomes are at MC12, ranging from some of them being close to certain to some being merely probable.

The first item in this list is essential.

1. Trade and health. This would be a statement concerning appropriate behavior to deal with the current pandemic. This would cover export restrictions; trade facilitation, regulatory coherence and cooperation, and tariffs; the role of services trade; transparency and monitoring; collaboration with other international organizations and engagement with key stakeholders; and a framework for future pandemics and crises. It appears that nothing would be agreed if no compromise is found on the question of the TRIPS waiver for COVID-19 vaccines.

The second item has an importance not just because of its intrinsic value but due to its long history of attempts at resolution. It requires reaching:

2. Agreed disciplines on fisheries subsidies.

• This has become a litmus test for the WTO. If the Members cannot find a way to carry out an often-renewed pledge after 21 years of negotiation, the feeling will become more widespread that little can be accomplished applicable to global trade. Objectively, the third requirement should be

3. A clear pledge to deal with trade and climate, and other environmental issues (marine plastics pollution, fossil fuels, etc. – this last, probably unspecified).

• The effort is likely to take the form of an open plurilateral negotiation, a joint statement initiative. This is now a path more often chosen, as agreement among 164 disparate sovereigns is becoming close to impossible to achieve.

Other expected outcomes:

4. The conclusion of the JSI on domestic regulation of services.

5. The already agreed result for the JSI on micro, small and medium-sized enterprises (MSMEs).

6. Progress reports on the JSIs on e-commerce and investment facilitation; and

7. The creation of a WTO Reform effort with a general mandate, citing as objectives at a minimum — restoring the negotiating function, putting into place an agreed dispute settlement mechanism, and some enhanced transparency.

More uncertain, but highly desirable:

• An inclusive work program for agriculture, and adoption of the pledge not to place export restrictions on food purchases by the World Food Programme.

• An extension of the moratorium on the placing of tariffs on electronic transmissions (paired with a continuing moratorium on the bringing of TRIPS non-violation cases); and

• A statement on the importance of trade in the cause of making more possible peace for conflict-affected countries.

What not to expect:

• Binding (enforceable) multilateral agreements with the exception of a fisheries subsidies agreement.

• An immediate solution to the dispute settlement impasse.

• An agreed statement dealing with forced labor (a new entrant agreed among the G7 trade ministers)

Commentators will view whatever accomplishments there are as positive or inadequate depending on their point of view. Few will say that the results are transformative — because transformation is not on the agenda. Transformation of the trading system will not begin, if at all, until 2022.

What should come next, beyond MC12?

The challenges that threaten the multilateral trading system are numerous. Among these are the strains caused by national measures taken to deal with the pandemic, the planned measures to address climate change, geopolitical divisions, the rise of populism and nationalism, and all too many nations turning inward to give domestic issues exclusive priority. In these countries, there is a far more cramped vision of national self-interest than that which allowed the creation of the world trading system three-quarters of a century ago. The answers for the future of the multilateral trading system (WTO) lie in three categories: (1) governance of the multilateral trading system, (2) a change in Member attitudes, and (3) the negotiation of new substantive rules.

Reforms that should be adopted starting next year:

⇒ The negotiating pillar — Members overcome stasis

• There is an end to the convoy system for negotiated outcomes, the existing system where all must agree or none can agree.

• “Consensus” is no longer to be misconstrued as requiring unanimity. It exists where a majority decides to move an issue forward and the rest acquiesce.

• A veto cannot be used to prevent agreements among like-minded Members.

• • However, when like-minding Members move forward to reach agreements among themselves, they cannot in doing so increase the obligations of any Member without its consent, nor reduce its existing rights.

• There is no veto over the budget or on the adoption of an agenda for a meeting. Vetoes are to be reserved for matters of strong national interest, and only as the result affects them directly.

• JSIs (open plurilaterals) are declared to be legitimate as part of the core functions of the WTO. Forward-leaning Members are encouraged to engage in open plurilaterals to expand the scope and effectiveness of the multilateral trading system.

⇒ Members make explicit what has always been implicit, that the core understanding of the multilateral trading system is that market forces, not state interventions, are to determine competitive outcomes. Members should agree —

• that the WTO is about convergence, not co-existence, and
• that to prevent market forces from generally determining competitive outcomes would be inconsistent with a Member’s WTO commitments.

⇒ Reaffirm that the multilateral trading system is about progressive trade liberalization, which includes ongoing improvements in the rules.

• An example would be prompt restarting and achieving an ambitious conclusion to an environmental goods agreement.

⇒ Each sub-multilateral (regional and bilateral) agreement should be justified according to whether it is likely to be more trade-creating for non-parties than trade-diverting. This would include existing agreements.

• An FTA should not be considered acceptable merely because it covers substantially all trade, an inadequate standard that is in any event increasingly honored in the breach.

⇒ An overarching principle is that the WTO is to provide fairness – in line with the founding of the system.

• Part of the answer is to restore trade remedies to their rightful place in the system.
• Another part of the answer lies in intensifying trade facilitation assistance, supporting the implementation of the African Continental Free Trade Agreement, promoting equitable access to supplies during the pandemic and working with international organizations to restore trade finance.

⇒ The dispute settlement pillar

• Quasi-judicial overreach – The solution is to be found in Members agreeing to extend the coverage of the agreed rules, particularly for industrial and agricultural subsidies and forced technology transfer.

• • Ministerial guidance (e.g., a panel’s factual findings are not reviewable on appeal, trade remedies are not to be treated as exceptions to the rules, a narrowing of their availability) that there is to be no gap-filling and that the dispute settlement system is not designed to make law, absent explicit consent of the Members. Panels are to concentrate on resolving disputes, not amending the rules.
  • Checks and balances – providing for DSB or other review of adherence to the guidance which has been given.
  • Structural change – substantially expand the number of appellate body members to deepen the amount of available expertise and increase diversity of representation, make no provision for collegial working arrangements among different appellate panels, and require strict adherence to time limits which should help to limit “judicial activism”.

⇒ Establishing the executive functions of the WTO

• A mandate is given for the Director-General to become far more proactive, overtly leading Members to negotiate compromises and tabling proposals to resolve negotiating impasses.

• Transparency

• • The Secretariat is called upon to engage in proactive, autonomous monitoring, using facts available, of measures affecting trade, both restrictive and trade-facilitating, noting which measures Members verify and for which there is no Member response.
  • Tougher penalties for failure to file notifications are put into place.

• Development

• • Echoing this Director-General’s efforts to bring vaccines and vaccine production to developing countries, she should convene a meeting of major commercial banks and international financial institutions to pledge to restore trade finance.

• Dispute settlement

• • The Director-General should table elements of a solution to the Appellate Body impasse.
  • The Director-General should announce that appeals into the void (appeals filed with the Secretariat for the Appellate Body, although none exists) will no longer be accepted. The WTO dispute settlement process is not to give advisory opinions unless a Member bringing a case so requests. If no alternative arrangements are made by the parties for an appellate process, every panel report will be deemed final.

• Strategic foresight

• • Given the likelihood of continuing major challenges to the global trading system, require the Secretariat to engage in Strategic Foresight, reporting its conclusions autonomously, not subject to advance Member review or censorship.

• Policy planning

• • The Director-General is asked to create a policy planning function within the Secretariat.

• Liaison with sister international organizations

• • Representatives of the WTO are posted with the World Bank, IMF, OECD, FAO, the AfCFTA Secretariat, and the ILO

• Budget

• • Provide the WTO with a self-sustaining budget based on a sliding scale tied to share of world exports. Activities of the Secretariat are not to be manipulated through the undue influence of individual Members over the WTO budget.

⇒ Adding to the rule book

• Trade and health

• • A working party should be formed to consider how the WTO should respond to the current pandemic and to future pandemics.
  • Part of its mandate would be to determine what should have been done starting in March 2020 when the scope of the pandemic first became clear.
  • Possible elements for study and recommendation:
    • A new accord on trade and health should contain a binding international understanding limiting the use of export restrictions, defining the WTO-rule-promised “equitable share” of supply that is to be made available to the world outside one’s own national boundaries (required by GATT Art. XX(j) when export controls are put into place). Assigning a number to that share would be a crude but potentially effective way to make the WTO rule have clear effect. Commitments should be made to have imports of essential goods duty-free.
    • As suggested by a colleague of mine at PIIE, Chad Bown, agree to a positive approach to subsidies when the object of support is the production of inputs for vaccines and vaccine manufacture itself.
  • China and India should join the Pharmaceutical Agreement, providing for duty-free treatment of covered products, thus restoring the coverage of the agreement to 90% of world trade in these products.
  • Negotiations are inaugurated to update the Information Technology Agreement to include medical equipment, making them duty-free.

• Agriculture

• • Agreement to begin negotiations on reducing domestic support (including cotton subsidies), increasing market access and food security, with a fixed timetable for results, to which specific new limits on domestic support would be added.
• Non-agricultural market access (NAMA)

• • A work program is created for progressive reduction of tariffs.

• Trade and climate

• Intensive discussions begin to determine rules for carbon border adjustment measures (CBAMs).
• A work program would include the fostering of circular economy, green credit, sustainable finance, etc.
• The Trade and Environmental Sustainability Structured Discussions begin to home in on negotiated results, and
• The Environmental Goods Agreement (EGA) negotiations resume.

• Resilient global value chains/supply (the subject of the 2021 WTO Public Forum)

• A working party is formed, not limited to essential goods for the pandemic, to address the concern that re-balancing in the name of assuring adequate supplies of essential goods could move too far inward, over-emphasizing near-shoring, hurting all economies. Some shortening of supply lines as a hedge against disruptions can be expected but should be limited by the need to avoid unnecessary costs, and the reality that global diversity of supplies will provide the surest security.

• State involvement

• Disciplines are deepened and broadened with respect to state-owned, state-invested, and state-influenced enterprises,
• Disciplines are created for industrial subsidies and forced technology transfer, and o Competition policy is enlisted to shore up market orientation.

• Inclusive trade

• Efforts continue to assure that the benefits of the trading system are extended with respect to women, and more generally workers, farmers, engaging business associations and civil society organizations etc.
• A declaration is adopted on the relationship of labor rights to the WTO, among other human rights.

• Accessions

• Additional emphasis is given to the need to conclude long-standing accessions and achieve universality in the WTO’s trade coverage, recognizing that the accession process is a leading edge of continuing WTO reform.

• AfCFTA

• A major WTO initiative is inaugurated dedicated to making the African Continental Free Trade Agreement a success.

• Accountability

• The Secretariat is to inform the Members of trade actions threatened or taken that may be inconsistent with Member obligations or against the general welfare of the Members.
  • Administrative measures: Member in arrears either have a payment schedule to which they must adhere, or they are barred from speaking.

• Unilateral measures for the good of the system

• Self-declaration of developing country status with its implied claim of eligibility for special and differential treatment) ceases.
• Global leadership has costs. The multilateral trading system needs greater investment from all its Members, including all of the largest Members.
• The countries whose economic standing has progressed the most since the WTO was founded should take the lead in proposing trade-liberalizing negotiations, with higher tariffs cut more deeply.

• Re-balancing

• The major trading Members, particularly, the United States, the European Union, and China each seek to restrike the balance envisaged by the GATT and WTO, giving up some flexibilities (unilateral measures, excessive claims of the need to resort to national security and safeguard measures; domestic support, lowering tariffs on a harmonized basis etc.). Trade remedies are recognized as a necessary price paid for greater openness on average.

Conclusion

My intention in this listing of what should occur in 2022 is not put forward as a criticism of whatever results come out of MC12, where significant results are still possible. It is to indicate that the work of multilateral cooperation does not end with MC12. If anything, MC12, like MC11, should be a launchpad for further efforts.

Alan Wm. Wolff is a distinguished visiting fellow at the Peterson Institute for International Economics. Until joining PIIE, he was deputy director-general of the World Trade Organization (WTO). 

To read the full commentary from the Peterson Institute for International Economics, please click here.

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April 20, 2017 Terence P. Stewart

(Updated 4-20-2017 afternoon)

The U.S. steel industry has been hard pressed by dumped and subsidized imports for many decades causing the closure of many plants and the loss of thousands of good paying jobs.  While the industry has filed literally hundreds of cases to address unfair trade practices, the industry continues to face large structural problems from China and others.  And steel is a fundamental building block of a strong national defense.

On April 19, 2017, Secretary of Commerce Ross initiated a Section 232 investigation into whether imports of steel mill products threaten national security.[1]  On April 20, 2017, President Trump signed a Presidential Memorandum for the Secretary of Commerce directing Commerce to prioritize the investigation and to “proceed expeditiously.”[2]  How quickly the investigation will proceed is unclear, but, in remarks upon signing the Memorandum, President Trump said “we’ll be back over a period of the next 30 to 50 days, …, and maybe sooner than that.  But statutorily, we probably want to take a very good, strong, hard study.”[3] 

The Commerce Secretary has initiated an investigation under a long extant but relatively seldom used US law.  Specifically, Section 232(b) of the Trade Expansion Act of 1962, as amended, requires the Secretary of Commerce on his own motion or upon the request from the head of any department or agency, to initiate an investigation “to determine the effects on the national security of imports of the article” of interest.  19 U.S.C. 1862(b)(1)(A).

Commerce has up to 270 days to conduct such an investigation, is required to consult with the Secretary of Defense “regarding the methodological and policy questions raised” by the investigation, seek information from other agencies and where appropriate hold public hearings and give interested parties an opportunity to present information.  19 U.S.C. 1862(b)(2)(A).  Commerce can also ask Defense for an assessment of the defense requirements of the article being investigated.  Id. at (b)(2)(B).

At the end of the investigation, the Secretary of Commerce submits a report containing the findings and recommendations of action or inaction and will publish the public portions in the Federal Register.  19 U.S.C. 1862(b)(3)(A) and (B).

The President has 90 days to determine what, if any, action to take if Commerce has found that importations “threaten to impair the national security” and has an additional 15 days to implement the action determined to be necessary to eliminate the threat.  19 U.S.C. 1862(c).  The President must submit to the Congress a written statement of the reasons to take action or to take no action.

Subsection (d) of 232 (19 U.S.C. 1862(d)) reviews elements that should be considered by the Commerce Secretary and the President:

For purposes of this section, the Secretary and the President shall, in the light of the requirements of national security and without excluding other relevant factors, give consideration to domestic production needed for projected national defense Bodog Poker requirements, the capacity of domestic industries to meet such requirements existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense, the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth, and the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements.  In the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair our national security.

Commerce regulations are found at 15 C.F.R. 705 et seq.

Since the law took effect, there have been twenty-six 232 investigations, nine since 1988:  three on crude oil and refined petroleum products, and cases on iron ore and semi-finished steel, ceramic semiconductor packages, gears and gearing products, plastic injection molding machines, uranium, and antifriction bearings.  https://www.bis.doc.gov/index.php/other-areas/office-of-technology-evaluation-ote/section-232-investigations.  Typically import relief has not been provided (crude oil from individual countries embargoed on two occasions, one involving Libya and one involving Iran) but that has depended on both the facts of the individual investigations and the construction of the statutory terms by the Administration in power.  VRAs were used on machine tools; use of national stockpile and the denial of GSP benefits were used on chromium, manganese and silicon ferroalloys; several crude oil cases, President authorized additional fees. 

The Commerce Department has an online pamphlet from June 2007 entitled, Section 232 Investigations Program Guide:  The Effect of Imports on the National Security (Bureau of Industry and Security Office of Technology Evaluation)(includes the statute, regulations and list of prior cases and their disposition).  https://www.bis.doc.gov/index.php/forms-documents/section-232-investigations/86-section-232-booklet/file.

While the investigation and Presidential review could take a year, it could be, and is likely to be, completed much more quickly, especially given the President’s direction that Commerce prioritize and expedite the 232 investigation.  Look for the Trump Administration to view national security needs more broadly than has been done in the past and to construe the statutory considerations in a manner that will support ensuring a viable industry in many sectors going forward.

[1] See Section 232 Notification Letter to Secretary of Defense James Mattis (2017-04-19) at https://www.commerce.gov/sites/commerce.gov/files/media/files/2017/2017-04-19_2.pdf.

[2] See the Memorandum at https://www.whitehouse.gov/the-press-office/2017/04/20/presidential-memorandum-secretary-commerce.  The Department of Commerce’s press release and fact sheets are available at https://www.commerce.gov/news/press-releases/2017/04/presidential-memorandum-prioritizes-commerce-steel-investigation; https://www.commerce.gov/news/fact-sheets/2017/04/president-trump-standing-unfair-steel-trade-practices; https://www.commerce.gov/news/fact-sheets/2017/04/fact-sheet-section-232-investigations-effect-imports-national-security.

[3] See https://www.whitehouse.gov/the-press-office/2017/04/20/remarks-president-trump-signing-memorandum-regarding-investigation.

Use under the Trump Administration

The Trump Administration used the law aggressively in 2017-2018 to provide relief on steel and aluminum. For many trading partners, there was concern about the claim of a national security threat from neighbors and allies as well as other countries. A number of countries filed challenges at the WTO and also retaliated against U.S. exports, most on the bogus theory that section 232 was a safeguard action. The U.S. filed disputes against the countries who retaliated. All these disputes remain unresolved at the WTO awaiting panel reports in the second half of 2021.

The Commerce Department also initiated a 232 investigation on automobiles and auto parts and received petitions seeking investigations on a number of other products (e.g., uranium, titanium sponge, mobile cranes, vanadium, electrical steel components for electrical transformers used in power grids). While the 232 investigation on automobiles and auto parts resulted in a report going from Commerce to the President, no action was ever taken and the report was never released publicly or forwarded to the Congress.

The actions by the Trump Administration raised concerns with Congress on whether the law needed to be updated and whether it was being used properly, at least as far as automobiles went. While there has been significant court litigation in the U.S. on steel tariffs that resulted from the 232 investigation, these challenges have been largely rejected by the courts. As noted above, disputes at the WTO continue on the WTO consistency of U.S. actions.

Congressional actions

Both the U.S. House of Representatives and the U.S. Senate saw legislative proposals put forward in 2019 to modify section 232 usually to give the Defense Department a greater role in determining if there is a national security threat and also to ensure the Congress a role in reviewing any proposal before actions were taken. See, e.g., H.R. 1008 (Feb. 6, 2019) and S.365 (Feb. 6, 2019)(identical bills).

During the Senate Finance Hearing considering the nomination of President Biden’s USTR nominee Katherine Tai, a number of Senators raised concerns about greater coordination with Congress by the Administration in the trade law arena generally and a need to review and possibly update certain trade laws.

On March 15, 2021, Senator Rob Portman (R-OH) introduced S.746, the Trade Security Act of 2021, essentially a repeat of the legislation he introduced in 2019. He had six cosponsors — Dianne Feinstein (D-CA), Joni Ernst (R-IA), Kyrsten Sinema (D-AZ), Deb Fischer (R-NE), Roger Wicker (R-MS), and Todd Young (R-IN). The press release explains the purpose of the bill. See Press Release, Portman, Sinema, Ernst, Feinstein, Fischer, Wicker & Young Introduce Trade Security Act to Reform National Security Tariff Process, March 15, 2021, https://www.portman.senate.gov/newsroom/press-releases/portman-sinema-ernst-feinstein-fischer-wicker-young-introduce-trade. The press release is copied below and is follow by the bill which is embedded.

“WASHINGTON, D.C. – U.S. Senators Rob Portman (R-OH), Dianne Feinstein (D-CA), Joni Ernst (R-IA), Kyrsten Sinema (D-AZ), Deb Fischer (R-NE), Roger Wicker (R-MS), and Todd Young (R-IN) today introduced the Trade Security Act, legislation that will reform Section 232 of the Trade Expansion Act of 1962 to better align the statute with its original intent as a trade remedy tool for the president and Congress to respond to genuine threats to national security. In keeping with the original intent of Section 232, this bill makes common-sense reforms that require the Department of Defense to justify the national security basis for new tariffs under Section 232 and increase congressional oversight of this process. The text of the bill is here and a brief summary is below. 

“’We must hold countries that violate our trade laws accountable, but we must do so in a way that protects American jobs and strengthens the U.S. economy,’ said Senator Portman.  ‘I originally introduced this bill over concerns regarding the previous administration’s intent to misuse Section 232 statute to impose tariffs on automobiles and auto parts, which would have a devastating impact on Ohio jobs and the U.S. economy as a whole. This bipartisan legislation preserves this trade tool while properly placing the national security designation at the Department of Defense and expanding the role of Congress in the process. As a former U.S. Trade Representative, I know that misusing our trade tools not only hurts our exports and our manufacturers, but also our consumers, so I urge my colleagues to support this bipartisan legislation.’ 

“’Preventing harmful tariffs caused by unnecessary trade wars will save Arizona jobs and protect Arizona families and businesses from higher prices,’ said Senator Sinema.

“’When bad actors abuse and take advantage of our trade policies in a way that threatens our national security, we need to hold these countries accountable,’ said Senator Ernst. ‘The Department of Defense, not the Department of Commerce, should evaluate and verify the national security basis for Section 232 tariffs. This bipartisan legislation will increase congressional oversight, and in turn, help the president make decisions that support American jobs while protecting our national security.’

“’This bipartisan legislation would restore Congress’ trade oversight role and ensure that the Department of Defense justifies the national security needs of tariffs imposed under Section 232,’ said Senator Fischer.

“’Indiana is the most manufacturing-intensive state in the country, and tariffs can detrimentally impact Hoosier farmers and manufacturers if wrongly utilized. During this pandemic that has disrupted our domestic supply chains, we need to be especially vigilant about how Section 232 is used. I’ll continue working to ensure Hoosiers have a seat at the table for future trade discussions,’ said Senator Young.

“NOTE: The Trade Security Act reforms the Section 232 statute to ensure that (1) any Section 232 actions are based on a national security determination by the Department of Defense; and (2) Congress has a larger role to play in 232 actions. Specifically, this bill will:

“Bifurcate the existing Section 232 process into an investigation phase, led by the Department of Defense, and a remedy phase, led by the Department of Commerce. Splitting these responsibilities, while guaranteeing consultation between the two departments at all stages of the process, plays to each department’s strengths to ensure that the statute is used for genuine national security purposes.

“Require the Department of Defense – instead of the Department of Commerce – to justify the national security basis for new tariffs under Section 232 and make the determination about the national security threat posed by imports of certain products. If a threat is found, the Department of Defense would send its report to the president. In the event that the president desires to take action based on the finding of a national security threat, the president would then direct the Secretary of Commerce, in consultation with the Secretary of Defense and the U.S. Trade Representative, to develop recommendations for how to respond to the threat. After receiving the recommendations of the Secretary of Commerce, the president would decide whether to take action.

“Increase the role of Congress in the Section 232 process by expanding the process whereby Congress can disapprove of a Section 232 action by passing a joint resolution of disapproval. Currently, Section 232 contains a disapproval resolution process limited only to the disapproval of actions on oil imports, which was inserted into Section 232 in 1980 by Congress in response to concerns about the misuse of the statute. This bill would expand the use of that disapproval resolution process to all types of products. The reformed disapproval process will only apply to future Section 232 actions.

“Require consultation with Congress throughout the Section 232 process. “

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Conclusion

In the United States, Congress and the Administration both have roles in international trade. Over the years, large amounts of responsibility for trade policy has been delegated by Congress to the President. The Trump Administration was aggressive in using all U.S. laws on the books to address trade areas of concern. When laws have not been reviewed in decades for fitness for purpose, an aggressive use of provisions, even if authorized by statute, will result in efforts to reconsider the scope of legislation by Congress.

Obviously, the introduction of a bill does not guarantee movement or modification of existing U.S. law. But there have been massive changes to the global economy and what may constitute a threat over the last nearly sixty years. There are also the questions of WTO compatibility and any WTO reform that may be appropriate based on the outcome of pending disputes and prior disputes on the use of GATT Art. XXI. Only a careful review of the existing law, current challenges, and WTO implications and potential modifications will lead to an appropriate review and possible modification of Section 232.

Senator Portman and the six co-sponsors have introduced a bill that if adopted would shift the roles of Commerce and Defense in the current legislation and would add a greater role for Congress in considering recommended actions. The bill certainly reflects concerns that have been expressed by many Senators and House members in the last few years on the proper role of Section 232 investigations.

The myriad problems facing U.S. companies from actions by some governments that are not addressed under the WTO, and the challenges to the national ability to safeguard health during the pandemic raise important red flags. Any legislative review of one statute should be undertaken in the context of a review of the array of tools available to the government and to the private sector and whether those tools are adequate to the needs of the present reality.

To read the original blog post from Terrence Stewart’s Current Thoughts On Trade, please click here

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After a full year, and as a new administration and Congress assume power, it’s important to evaluate the effectiveness of the deal at achieving its goals.

It’s not a pretty picture.

The dispute between the U.S. and China came with a hefty price tag. Americans have paid tens of billions in extra taxes to trade with China since 2018, as well as billions of dollars in subsidies to farmers. At the same time, it did nothing to further U.S. strategic objectives.

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The latest round of informal open-ended meetings of the Negotiating Group on Rules (Fisheries Subsidies) occurred this week on November 2-4. On the first day, November 2, the Chair of the Negotiating Group speaking to heads of delegation, presented a revised draft consolidated text. RD/TN/RL/126/Rev. 1. This document has similarly not been released to the public, but was posted in the November 3, 2020 issue of Washington Trade Daily. Reference in this post to the contents of either version of the draft text or the presentation of text itself is based on my review of the documents as printed in the Washington Trade Daily issues noted.

The WTO Secretariat released a press release on November 2 entitled “Fisheries subsidies negotiations chair introduces revised draft consolidated text”. Within the body of the press release was a link to “Excerpts from the peaking notes of the Chair of the Negotiating Group on Rules, Ambassador Santiago Wills”. Both documents are embedded below.

The June draft consolidated text contained ten articles. The first revision released on November 2nd contained eleven (adding Article 11, Final Provisions” and modifying the title of Article 8 to delete “and/or surveillance” leaving “Notification and transparency”).

The articles in the revised draft consolidated text are:

1. Scope;
2. Definitions;
3. Prohibition on subsidies to illegal, unreported and unregulated fishing (“IUU fishing”);
4. Prohibition on subsidies concerning overfished stocks;
5. Prohibition on subsidies concerning overcapacity and overfishing;
6. Specific provisions for LDC members;
7. Technical assistance and capacity building;
8. Notification and transparency;
9. Institutional arrangements;
10. Dispute settlement;
11. Final provisions.

The negotiations have always been limited to marine wild capture fishing and don’t cover aquaculture or inland waters. Article 1 is consistent with the intended reach of any agreement. There has been no change to the text of Article 1. Footnote 1 has been modified from “For greater certainty, this excludes aquaculture and inland fisheries” to read “For greater certainty, aquaculture and inland fisheries are excluded from the scope of this [Instrument].”

Article 2, definitions, has been expanded from just three — “fishing”,“fishing related activities” and “vessel” to five in the revised draft by adding a definition for “fish” [“means all species of living marine resources, whether processed or not”] and for “operator” [“means the owner of the vessel, or any person on board, who is in charge of or directs or controls the vessel”]. “Operator” had previously been defined as part of footnote 2 to Art. 3.1

Prohibiting subsidies on IUU fishing is a critical part of the UN sustainable development goal 14.6. Article 3 lays out the prohibition and how the actions of a fishing vessel are determined to be “illegal, unreported or unregulated”. Various Members (coastal, flag State, port State, subsidizing) or regional fisheries management organizations or arrangements (Art. 3.2) can make such findings where the result is “based on positive evidence and follows due process” (Art. 3.3(b)). Most provisions in Article 3 remain unchanged. However, Art. 3.3 is broken into parts in the revised draft. Revised Art. 3.4 deletes the second sentence from the June draft (“The subsidizing Member may refrain from implementing the prohibition under paragraph 3.1 in case of a minor infraction.”), Articles 3.5 and 3.6 from the June draft are Articles 3.6 ad 3.5 in the revised draft. Article 3.3 from the June draft is reproduced below followed by the revised draft:

Art. 3.3 from RD/TN/RL/126 (June 25, 2020)

“3.3 A determination[6] under paragraph 3.2 refers to the final finding by a Member that a vessel [or operator] engaged in IUU fishing, or the final listing of a vessel [or operator] by an RFMO/A as a vessel [or operator] engaged in IUU fishing. [Determinations under subparagraphs 3.2[(a), 3.2(c), and 3.2(e)] shall be based on positive evidence; follow fair, transparent, and non-discriminatory procedures,] including prompt notification to the flag State [or subsidizing Member], if known, through appropriate channels, of the initiation of investigation, [and an opportunity to the flag State or subsidizing Member to provide information to be taken into account in the determination]; [and be in accordance with relevant international law.]”

Art. 3.3 from RD/TN/RL/126/Rev. 1 (November 2, 2020)

“3.3 (a) A determination[6] under paragraph 3.2 refers to the final finding by a Member and/or the final listing by an RFMO/A that a vessel [or operator] has engaged in IUU fishing.

“(b) [The prohibition under paragraph 3.1 shall apply where the determination under subparagraphs 3.2[(a), 3.2(c), and 3.2(e)] is based on positive evidence and follows due process, [in accordance with relevant international law]].

“(c) [If the flag State [or subsidizing Member] is known, a Member shall promptly notify the flag State [or subsidizing Member] of the initiation of an IUU investigation [, and provide an opportunity to the flag State [or subsidizing Member] to provide information to be taken into account in the
determination.]]”

Footnotes to Article 3 are basically unchanged in the revised draft text.

Articles 4 and 5 address the other core objective of UN Sustainable Development Goal 14.6, prohibiting subsidies on overfished stocks, overcapacity and overfishing. Both articles contain exceptions or special and differential treatment for developing and least developed countries (LDCs). Depending on whether advanced developing countries waive such provisions, there will be problems for some Members (including the U.S.) in having such exceptions or S&D provisions included in the text. Specifically, LDCs are exempted from the prohibitions of Art. 5.1 “for fishing or fishing related activities” (revised Art. 5.7(a)) and developing countries “for fishing or fishing related activities at sea within their territorial sea” (revised Art. 5.7(b)). The draft consolidated text attempts to cover some developing and LDC countries despite the above two exceptions where certain criteria are met (revised Art. 5.7(c)). It is assumed that Korea, Singapore and Brazil consistent with their prior statements that they would forego special and differential treatment in future agreements would not be eligible for the exceptions or S&D contained in the draft agreement if the final agreement contains such provisions.

There are no changes for Article 4 between the June draft and the revised draft released on November 2. For Article 5, Article 5.1.1, 5.1.2 and 5.1.3 of the June draft text are now in 5.1.1 and 5.2. Other than renumbering (e.g., old Art. 5.2 is revised Art. 5.3, etc.), the rest of Article 5 is substantively unchanged. The June Art. 5.1.1.-5.1.3 and the November revised 5.1.1 and 5.2 are copied below.

Art. 5.1.1, 5.1.2, and 5.1.3 from RD/TN/RL/126 (June 25, 2020)

“5.1.1 A subsidy contributes to overcapacity or overfishing if it reduces capital costs or operating costs of fishing or fishing related activities at sea regarding a stock that is being fished at a rate of fishing or with a measure of fishing capacity that is greater than would allow the stock to be maintained at a sustainable level.[11]

“5.1.2 For the purposes of this Article:
“(a) capital costs include costs of construction, acquisition, modernization, renovation or upgrading of vessels, purchase of machines and equipment for fishing vessels (including fishing gear and engine, fish-processing machinery, fish-finding technology, refrigerators, or machine for sorting or
cleaning fish); and
“(b) operating costs include costs of fuel, ice, bait, personnel, social charges, insurance, and gear; subsidies that reduce operating costs include, inter alia, income support of vessels or operators or the workers they employ, payments based on the price of fish caught, subsidies for at-sea support, and subsidies to cover operating losses of vessels or fishing or fishing related activities.

“5.1.3 Notwithstanding paragraph 5.1, a Member may grant or maintain the subsidies set out in paragraph 5.1 if the subsidizing Member can demonstrate that it has other policies in place that [effectively ensure] the stock or stocks in the relevant fishery or fisheries are maintained at a sustainable level.”

Art. 5.1.1 and 5.2 from RD/TN/RL/126/Rev. 1 (November 2, 2020)

“5.1.1 For the purpose of paragraph 5.1, subsidies that contribute to overcapacity or overfishing [include]:
“(a) subsidies to construction, acquisition, modernisation, renovation or upgrading of vessels;
“(b) subsidies to the purchase of machines and equipment for vessels (including fishing gear and engine, fish-processing machinery, fish-finding technology, refrigerators, or machinery for sorting or cleaning fish);
“(c) subsidies to the purchase/costs of fuel, ice, or bait;
“(d) subsidies to costs of personnel, social charges, or insurance;
“(e) income support of vessels or operators or the workers they employ;
“(f) price support of fish caught;
“(g) subsidies to at-sea support; and
“(h) subsidies covering operating losses of vessels or fishing or fishing related activities.

“5.2 Notwithstanding paragraph 5.1, a Member may grant or maintain subsidies referred to in paragraph 5.1 if it demonstrates that measures are implemented to maintain the stock or stocks in the relevant fishery or fisheries at a biologically sustainable level.[11]”

Article 6 has two subparts, one giving LDCs a transition period once a country is no longer an LDC and the other having Members “exercise due restraint in raising matters involving an LDC Member”. There are no changes in the revised draft from the June draft.

Article 7 calls on developed country Members and such developing country Members who indicate being in a position to do so to “provide targeted technical assistance and capacity building assistance” to developing countries and LDCs. There are no changes to the revised draft from the June original draft text.

As noted in my June posts, Articles 8-10 had not been fleshed out in the June draft consolidated text. The November 2 revised draft consolidated text has elements of each of these Articles as well as some material on the new Article 11, Final Provisions. The text is copied below.

“ARTICLE 8: NOTIFICATION AND TRANSPARENCY

“8.1 In order to strengthen and enhance notifications of fisheries subsidies, and to enable more effective surveillance of the implementation of fisheries subsidies commitments, each Member shall [, to the extent possible,] provide the following information as part of its regular notification of fisheries subsidies under Article 25 of the SCM Agreement[15]:
“(a) [PLACEHOLDER – LIST OF SPECIFIC INFORMATION TO BE NOTIFIED]

“8.2 Each Member shall notify [the relevant SCM body/the Committee established under paragraph 9.1] in writing on an annual basis of:
“(a) any list of vessels and operators that it has determined as having been engaged in IUU fishing; and
“(b) where applicable, a list of its fisheries access agreements in force with another government or governmental authority, and such notification shall consist of the titles of the agreements and a list of their parties.

“8.3 A Member may request additional information from the notifying Member regarding the notifications and information provided under paragraphs 1 and 2. The notifying Member shall respond to that request as quickly as possible in writing and in a comprehensive manner. If a Member considers that a notification or information under paragraphs 1 and 2 has not been provided, the Member may bring the matter to the attention of such other Member or to the [Committee].

“ARTICLE 9: [INSTITUTIONAL ARRANGEMENTS]

“[9.1 There is hereby established a [COMMITTEE NAME] composed of representatives from each of the Members. The Committee shall elect its own Chair and shall meet not less than twice a year and otherwise as envisaged by relevant provisions of this [Instrument] at the request of any Member. The Committee shall carry out responsibilities as assigned to it under this [Instrument] or by the Members and it shall afford Members the opportunity of consulting on any matter relating to the operation of this [Instrument] or the furtherance of its objectives. The WTO Secretariat shall act as the secretariat to the Committee.]*

“9.2 Each Member shall, within one year of the date of entry into force of this [Instrument], inform the [Committee] of measures in existence or taken to ensure the implementation and administration of this [Instrument], including the steps taken to implement prohibitions set out in Articles [3, 4 and 5]. Each Member shall also inform the [Committee] of any changes to such measures thereafter. The [Committee] shall review annually the implementation and operation of this [Instrument], taking into account the objectives thereof.

“9.3 Each Member shall, within one year of the date of entry into force of this [Instrument], provide to the [Committee] a description of its fisheries regime with references to its laws, regulations and administrative procedures relevant to this [Instrument], and promptly inform the [Committee] of any modifications thereafter. A Member may meet this obligation by providing to the [Committee] an up-to-date [URL][electronic link] to the Member’s or other appropriate official web page that sets out this information.

“[9.4 The Committee shall examine [frequency] all information provided pursuant to Articles 3 and 8 and this Article.]

“9.5 The [Committee] shall maintain close contact with the relevant international organizations in the field of fisheries management, especially with the Food and Agriculture Organization of the United Nations (FAO) and relevant RFMO/As.

“9.6 Not later than [X] after the date of entry into force of this [Instrument] and periodically thereafter, the [Committee] shall review the operation of this [Instrument] with a view to making all necessary modifications to improve the operation of this [Instrument], taking into account the objectives thereof.

“ARTICLE 10: DISPUTE SETTLEMENT

“[The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding, and Article 4 of the Agreement on Subsidies and Countervailing Measures shall apply to consultations, the settlement of disputes, and remedies under this bodog poker review [Instrument], except as otherwise specifically provided herein.]

“ARTICLE 11: FINAL PROVISIONS

“11.1 Except as provided in Articles [3 and 4], nothing in this [Instrument] shall prevent a Member from granting a subsidy for [natural] disaster relief, provided that the subsidy is:
“(a) limited to the relief of a particular [natural] disaster;
“(b) limited to the affected geographic area;
“(c) time-limited; and
“(d) in the case of reconstruction subsidies, limited to restoring the affected area, the affected fishery, and/or the affected fleet up to [a sustainable level of fishing and/or fishing capacity as established through a scientific-based assessment of the status of the fishery and in no case beyond] its pre-disaster level.

“11.2 (a) This [Instrument], including any findings, recommendations, and awards with respect to this [Instrument], shall have no legal implications regarding territoriality or delimitation of maritime jurisdiction.
“(b) A panel established pursuant to [Article 10 of this Instrument] shall not entertain any claim that would require it to address any issues of territoriality or delimitation of maritime jurisdiction that is contested by a party or a third party.”

Conclusion

It is obviously useful to have progress being made on a draft text, even if it is simply a draft from the Chair of the Negotiating Group. The Chair’s comments at the start of the meeting which are presented above show that the WTO Members remain far from an agreed deal. There remain some important “placeholders” in the draft text as well. In the end, it will be up to Members to decide if they can get past their differences and achieve an agreement that is meaningful in fact and will help the world move towards sustainable development in the handling of the global fish supplies.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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“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.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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The WTO has been struggling to restore its relevance in a rapidly changing global market but with limited success due to the challenges facing its negotiating arm. Those challenges are accentuated by the major tensions between three of the largest Members (U.S., EU and China) with the U.S. and EU having fundamental differences on the role of dispute settlement and with the US and EU and Japan having deep concerns about the trade distorting policies of China that are not adequately addressed by current WTO rules. The need for broad reform seems to be recognized by many WTO Members, though priorities for reform vary widely by Member or groups of Members. The WTO is working through its selection process for a new Director-General following the early departure of the last Director-General, Roberto Azevedo. The candidates vying for the Director-General slot have faced many questions on how they would help promote reform and deal with long festering issues. The distrust within the WTO membership generally and between the largest Members in particular resulted in the Members being unable to agree on an acting Director-General, so the WTO is operating without a Director-General at the present time though in a statement today to the G20 Trade Ministers, Deputy Director-General Alan Wm. Wolff, is listed as “Joint Acting Director-General”.

A push by the Secretariat for greater engagement by Members in the reform process

Because the WTO is a member-driven organization, the key to reform is for Members to come forward with proposals, for the membership to discuss proposed reforms, and for Members to look for areas where there are common interests or shared expectations.

The Secretariat can encourage Members to engage. At the present time, Deputy Director-General Wolff (DDG Wolff) has been making numerous statements to different groups encouraging engagement to move the reform process forward and highlighting the role the WTO can play in environmental and development of circular economies.

Specifically, between September 17 and today, September 22, DDG Wolff has given virtual statements to five groups. The first three were on September 17 and were to Business Europe on trade and climate change, to the Economic Times Packaging Virtual Summit (India) on packaging issues in trade including plastics pollution and moving to circular economies, and to the World Knowledge Forum in Korea on trade disputes between major trading powers and calling on all countries to work to improve WTO rules and recognizing that even where there are major differences between Members, there are common interests as well. See DDG Wolff: “Trade policies have a huge potential to support climate action,” https://www.wto.org/english/news_e/news20_e/ddgaw_18sep20_e.htm; DDG Wolff: WTO members addressing implications of plastics pollution, https://www.wto.org/english/news_e/news20_e/ddgaw2_17sep20_e.htm; DDG Wolff: Time for all countries to work to improve the rules of multilateral trade, https://www.wto.org/english/news_e/news20_e/ddgaw_17sep20_e.htm. The conclusion from the statement to the World Knowledge Forum gives a good summary: “As for the WTO, the demands are clear. It is time to consider needed reforms, to bring to life the negotiating forum that the founders of the WTO envisaged, to find a way forward to a single agreed binding dispute settlement system that all can support, and to strengthen the institution more generally. The support of the largest Members along with their trading partners will be necessary to succeed. Crises have in the past opened up new opportunities for making progress in building the world trading system and can do so now again.”

On September 21, DDG Wolff made comments to the Trade Law Center for Southern Africa. DDG Wolff: WTO reform crucial to restoring confidence in the trading system, https://www.wto.org/english/news_e/news20_e/ddgaw_21sep20_e.htm. His statement was entitled, “A WTO fit for the 21st century trade governance”. The following excerpt goes through some of the reform issues that are already being teed up:

The last major update of the WTO rule book took place during the Uruguay Round. These negotiations were concluded in Marrakesh in April 1994, just as the world was beginning to hear of the internet. The world has changed over these last 25 years in ways that could scarcely have been imagined. Not only has technology revolutionized how we trade but even the main actors in the global economy have changed with new groundbreaking economic and business models.

Ongoing WTO reform efforts will be crucial to restoring confidence in the system’s ability to meet the needs of its users and adapt to changing economic realities. However, the full range of challenges as well as opportunities that the WTO’s membership faces cannot, and will not, be addressed overnight. More proposals need to be tabled and discussed, on how to update the WTO to enhance its effectiveness and assure that it evolves alongside changes in world trade.

Trade rules will have to adapt to economic transformations such as the fourth industrial revolution, characterized as the advent of ‘cyberphysical systems’ involving entirely new capabilities for people and machines. If they do not, the likely outcome is unilateral action and fragmentation, which means unpredictability and higher costs for business, especially micro, small and medium enterprises (MSMEs). International cooperation can offer a path forward to a global economy where everyone can participate and benefit.

Currently, WTO members are progressing on multiple fronts. At the multilateral level, they are working to reach an agreement that would limit fisheries subsidies and contribute to the health of our oceans. They are looking at how to liberalize and reduce distortions in agriculture trade.

At the same time, groups of WTO members are considering potential future rules on investment facilitation, e-commerce and on domestic regulations that can unnecessarily obstruct services trade. These ‘joint statement’ initiatives, as they are called, address issues at the heart of the 21st century world trade. They also represent a quiet revolution in the way governments negotiate at the WTO. Like-minded members are free to pursue issues of interest; the initiatives are open to all Members, but no Member is required to join. As one example, the e -commerce talks, bring together 82 members, accounting for around 90% of global bodog online casino trade. Establishing joint rules of the game would facilitate electronic transactions and digital trade and could help manage wider tensions over technology.

WTO Members must deliver on both the multilateral front and the joint initiatives as these are vital for the future of the system. For the road ahead, the WTO’s Twelfth Ministerial Conference, next year in Kazakhstan, will be a key landmark. It must deliver credible agreements and map the way for further reforms.” [Emphasis added]

And then today, September 22, DDG Wolff spoke to the G20 trade ministers urging them to step up engagement on WTO reform. https://www.wto.org/english/news_e/news20_e/igo_22sep20_e.htm. DDG Wolff’s statement is reproduced below:

“Thank you, Chair. 

This is a time of great challenges for the world trading system as well as of great opportunities.

 World trade has fallen by 18% compared to last year.

Shortfalls in key medical supplies persist, despite icreased production – and increased trade. Preliminary figures indicate that global trade in products such as personal protective equipment, hand sanitizer and ventilators grew by close to 30% in the first half of the year.

While some trade restrictions have already been rolled back, particularly with respect to foodstuffs, the pandemic is far from over and economic challenges will persist.

The roll-back of trade restrictions may already be losing momentum.

Government support needed to fight the economic downturn could end up distorting competitive conditions and fueling future trade tensions.

However, fresh opportunities also exist.

The WTO’s Members are well-advanced in the process of selecting a new WTO Director-General. 

Renewed engagement of the WTO’s Members can ensure that the WTO is fully ready to meet the challenges of a changing global economy.

As the pandemic continues, emergency trade-restrictive measures should be reviewed through the lens of the G20’s criteria that existing measures are, in fact, targeted, proportionate, transparent, and temporary; members should begin to unwind those that are no longer absolutely necessary. 

Existing negotiations to modernize the WTO’s rules to meet the challenges of the global digital economy and to provide for sustainable development should be brought to a successful conclusion.

The process of systemic reform, called for by the G20 leaders and trade ministers, should begin in earnest with WTO Members deliberating concrete proposals, restoring the WTO to its intended place

where negotiations are successfully concluded;

where disputes are settled within a universally accepted structure; 

actively served by a strong, dedicated, professional Secretariat. 

In an era of political and economic stress, the WTO must be made fit for purpose.  It must be seen to deliver fairness to all who participate in or are affected by global commerce. 

A robust, sustained and inclusive economic recovery requires open and predictable international trade, supported by a well-functioning world trading system.  

Spurred by the determination expressed by you as trade ministers, informed by the Riyadh Initiative, under a new leader, the WTO can fulfill its promise.”

Will Members Come Forward With Proposals and Work for Reform?

As reviewed in prior posts, there have been many proposals for reform floated by individual Members and there are important initiatives underway either multilaterally (fisheries subsidies) or plurilaterally (Joint Statement Initiatives). The U.S., EU and Japan have been working for several years on proposals dealing with industrial subsidies, state owned enterprises and forced technology transfer. No proposals on these topics have yet been submitted by these Members.

The U.S. and others have presented proposals for improved transparency on notifications. The U.S. has pushed for changes to which Members are entitled to special and differential treatment and has pushed for addressing whether economies that are not market economies can be disciplined within the WTO under the existing rules. The U.S. has also shut down the Appellate Body based on longstanding concerns with deviations by the Appellate Body (AB) from the limited mandate provided the AB by the Dispute Settlement Understanding. The U.S. has also raised concerns about the structure of bound tariffs noting the high rates of many Members with rapid rates of economic development, but the U.S. has not made a specific proposal to address its concerns on this matter as of yet.

Other proposals from other Members have also been made.

In remarks made by the European Commission’s Executive Vice-President Valdis Dombrovskis on September 21 at the informal meeting of EU trade ministers, Mr. Dombrovskis outlined the EC’s objectives for the WTO including reform. The link to Mr. Dombrovskis’ speech is here, https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_1720:

“Let me start with the WTO, which is currently selecting its new Director General.

“The discussions today have shown strong agreement amongst ministers that the EU needs a Director General, who is capable of managing a profound reform of the organization.

“This reform should focus on three main things:

“1. Fixing the dispute settlement system,

“2. Reinitiating global trade negotiations,

“3. Addressing the current challenges of international trade, in particular sustainability and the need for a level-playing field.

“To be credible, the new leader of the WTO:

“1. must enjoy the trust of WTO members and

“2. be able to present balanced views that reflect the diverse nature of the WTO Membership.

“The EU will view the remaining five candidates in this light.”

The three broad categories of reform that the EU supports were discussed at some greater length in EC President von der Leyen’s State of the Union speech earlier this month. The trade elements of the speech were reviewed in an earlier post. See September 18, 2020:  Trade elements of EC President von der Leyen’s State of the Union address at the European Parliament plenary on 16 September 2020, https://currentthoughtsontrade.com/2020/09/18/trade-elements-of-ec-president-von-der-leyens-state-of-the-union-address-at-the-european-parliament-plenary-on-16-september-2020/.

There should be a joint statement from the G20 trade ministers later today which presumably will similarly reemphasize the need for moving WTO reform forward.

What isn’t clear is whether the collective understanding of the need for reform will actually result in serious reform efforts in the coming years. The large differences in views of Members, the serious lack of trust among Members, and the apparent lack of an ongoing common vision of the purpose of the WTO are major impediments to forward movement, just as they have been in the last two decades.

Conclusion

All of the candidates to become the next Director-General of the WTO understand the need for major reform to maintain or restore the WTO’s relevance. The WTO Secretariat continues to do its support part to articulate the value and need for reform and to encourage Members to conclude negotiations that are underway and to come forward with concrete proposals for the membership to discuss and consider.

While there are many proposals for reform that have been presented, Members have put proposals forward on a somewhat ad hoc basis and without a more formal process for compiling and considering the proposals. The major economies are at very different positions on many reform agenda items that have been identified, though there is some commonality among at least several of the majors on a few reforms. Other than fisheries subsidies and some of the Joint Statement Initiatives, other reforms seem unlikely to occur in the next several years. If that proves to be correct, the WTO will likely suffer a continued drift towards irrelevance.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, bodog poker review|Most Popular_Congressional

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