Eleventh Hour for WTO Reform

James Bacchus

The next ministerial conference of the World Trade Organization, scheduled for June in Nur??Sultan, Kazakhstan, may be the last chance for the WTO to reclaim its central role in the multilateral trading system. With all too few successes in the 21st century about which to boast, WTO members must prove anew there that they can negotiate new rules and put them into effect. To improve their prospects for success in Kazakhstan, they must agree now on the issues most likely to have chances to generate consensus by June and pursue negotiations on those issues immediately.

In the countdown to Kazakhstan, five issues seem most ripe for negotiating success. Those issues, as I argue in a new paper titled “Reviving the WTO: Five Priorities for Liberalization“released today by the Cato Institute, are free trade in medical goods, free trade in environmental goods, new disciplines on fisheries subsidies, investment facilitation, and digital trade. These should be considered the five first pieces of WTO reform.

First, the COVID-19 pandemic has made clear the interdependence of countries for medicines and medical supplies, revealing the wisdom of a free trade agreement in medical goods. Even before the pandemic struck, the average bound tariff on medical products for all WTO members was 26 percent, with some tariffs as high as 65 percent. The intense pressures of the pandemic resulted in the imposition of new trade restrictions; at least 75 national governments imposed restricted on exports of medicines and medical supplies.

A new WTO agreement should aim to eliminate all tariffs on imports and all export restrictions on drugs and other medical goods. In addition, WTO members should agree to promote transparency in all national measures taken to fight the virus; end price??inflating “buy local” requirements for medical goods; eliminate unnecessary regulatory and administrative barriers that hinder medical trade; and adopt international standards to help ensure the safety and quality of imported medical goods.

Second, after nearly two decades of negotiations, WTO members must finally reach an agreement to end tariffs on environmental goods. This would free up trade in a sector that accounts for about $1 trillion in global trade annually and encourage the proliferation of climate??friendly and other new technologies worldwide.

The main hold??up here has been the inability of the negotiating countries to agree on a list of “environmental goods.” Some interest groups have proffered proposed lists that contained virtually everything, including (literally) the kitchen sink. China, the European Union, and the United States have squabbled over whether bicycles are environmental goods.

There is time between now and June to resolve these disputes and agree on a final list. There is need also to make certain that this final list will be a “living” list to which new environmental goods can be added as they are invented in the years to come.

The third among priorities for the Kazakhstan Ministerial Conference is an agreement to curb subsidies of the world’s fisheries, which could go a long way to stem the crisis of overfishing. Fisheries subsidies total $35.4 billion worldwide. Mostly, these subsidies go to large fishing companies and not to small and artisanal fishers. They enable large fleets to range farther into the global commons of the high seas and shrink the threatened fish stocks there. A WTO agreement that reduced and eventually eliminated these subsidies could do much to preserve the global fishing industry while also making fishing more sustainable. The Pew Charitable Trusts have calculated that the total capacity of the world’s fishing fleets—in part driven by these huge fisheries subsidies—is 250 percent of the level that would bring in the maximum sustainable fish catch worldwide.

WTO members have been negotiating for nearly twenty years on this issue, while subsidies have continued to worsen the problem of dangerously declining global fish stocks.

Fourth on the list of priorities for Kazakhstan is an agreement on investment facilitation. Because of the pandemic, global foreign direct investment is projected to plunge 40 percent this year. To recover from the pandemic, more FDI will be required. As a counterpart to the existing WTO agreement that facilitates trade, an investment facilitation agreement could improve national procedures where they impede FDI.

As WTO members have already established, an investment agreement could “improve the transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention.”

Finally, WTO members should aim to reach an agreement on digital trade. The most significant new dimension of international trade in the twenty??first century is that so much of it is now digital. Yet there are no WTO rules written specifically for digital trade. WTO members have been trying to write such rules since 1998, but—apart from a temporary moratorium on the application of customs duties on electronic transactions, which has been renewed annually—they have little to show for it.

The complexity and controversial nature of issues such as data privacy and data localization are such that it will not be possible to resolve them by June. But it is possible to agree by then on a legal framework for digital trade and on rules on some basic elements of digital trade (such as, for example, acceptance of electronic signatures). That would be something on which to build in further negotiations.

As hard as it will be to achieve consensus on these five WTO reforms, these are the five reforms that seem the ripest for resolution by June in Kazakhstan. Success in reaching an agreement there on all five would do much to end the existential crisis of the WTO. Failure to reach agreement on any of them would prolong and worsen that crisis, with unforeseeable but undoubtedly unfortunate consequences for all WTO members.

There is still time, though not much, to avoid that unwelcome fate.


The World Trade Organization Is No Impediment to Vaccine Production or Distribution

James Bacchus

In a sign of their increasing frustration with global efforts to ensure that all people everywhere will have access to COVID-19 vaccines, a number of developing countries have asked other members of the World Trade Organization to join with them in a sweeping waiver of the intellectual property rights relating to those vaccines. Their request raises anew the recurring debate within the WTO over the right balance between the protection of intellectual property rights and access in poorer countries to urgently needed medicines.

The proposed waiver brings back bad memories for all in the WTO of the long and contentious dispute between developed and developing countries over the compulsory licensing of HIV/AIDS drugs nearly two decades ago. And it does so at a time when the very last thing the WTO needs amidst an existential crisis is yet another acrimonious debate over perceived trade obstacles to public health.

As discussed in my new Cato Free Trade Bulletin (published today), India and South Africa have asked the members of the WTO to waive protections in WTO rules for patents, copyrights, industrial designs, and undisclosed information (trade secrets) in relation to the “prevention, containment or treatment of COVID-19…until widespread vaccination is in place globally, and the majority of the world’s population has developed immunity….”

They and other developing countries want to give all WTO members the complete freedom to refuse to grant or enforce patents and other intellectual property rights relating to COVID-19 vaccines, drugs, diagnostics, and other technologies for the duration of the pandemic.

So far, the members of the WTO have failed to muster the required consensus to move forward with the proposed waiver. The European Union, the United States, and other developed countries have opposed the waiver request. They say there is no evidence to prove that intellectual property rights are a genuine barrier to access to COVID-19 related medicines and technologies.

The pharmaceutical industry agrees with these developed countries, pointing to the role of IP rights as incentives to innovations such as new medicines. Civil society activists disagree, saying that the anticipated COVID-19 vaccines should be treated as global public goods. Usually, such concerns in developing countries are addressed through compulsory licensing, which authorizes local manufacturers to make patented products or use patented processes even though they do not have the permission of the patent holders. Drug makers do not like compulsory licensing, but the option of compulsory licensing is part of the bargain that has been struck by WTO members in balancing IP rights against public access to essential medicines.

What is missing from the waiver request is a clear explanation by those who seek the waiver of why they believe the right to compulsory licensing they already possess under WTO IP rules will prove insufficient to ensuring access to COVID-19 vaccines.

In their waiver request, India and South Africa stated that “many countries especially developing countries may face institutional and legal difficulties when using flexibilities available” under the existing WTO rules. They also said that a “particular concern for countries with insufficient or no manufacturing capacity” is that the rule that allows countries that produce generic medicines under compulsory license to export all of those generic medicines to least??developed countries that lack their own manufacturing capabilities will lead to a “lengthy and cumbersome process….”

But India and South Africa did not offer any further explanation or provide any evidence to support these general assertions.

Before such a sweeping waiver of IP rights is taken up, it should first be demonstrated that the option of compulsory licensing and other flexibilities under the current trade rules will not suffice. At this point, the developed countries that have opposed the waiver are correct. There is no evidence of the need for such a waiver.

For this reason, at this point, the proposed waiver is unnecessary. Action by the WTO should be contemplated only if, and when, the current flexibilities in WTO rules prove to be inadequate. Should that happen, any such action should be no broader than necessary to meet the urgent global medical need.

This waiver proposal exists only because of legitimate concerns by developing countries that multilateral endeavors to make certain that all people everywhere have early access to the upcoming COVID-19 vaccines are proceeding at a slow pace and with uncertain success. The answer to these real concerns is, however, not another impassioned and prolonged multilateral impasse inside the WTO. It is instead a redoubling of cooperative international efforts to reach solutions in those efforts outside the WTO.

The right balance in the WTO trade rules on intellectual property is a balance that provides all countries with sufficient flexibility to protect intellectual property rights while also promoting access to life??saving medicines. For COVID-19 medicines, there is no proof at this time that this right balance does not currently exist. Maintaining this balance must remain the aim of the WTO, and it must be the aim of every endeavor of multilateral cooperation in the fight to end this pandemic.


A Pro??Trade Policy for the Democratic Party

James Bacchus

Democrats hope to elect a Democratic president and a Democratic Congress in November. If they succeed, they will become responsible for setting a new trade policy for the country, which has been in retreat from trade liberalization and from international trade cooperation under President Donald Trump. Even if they do not win in November, Democrats will need to frame a trade policy going forward. In a new Policy Analysis released today, I set forth a number of suggestions. This blog post provides a short summary of those suggestions.

Whatever the outcome of the election, in constructing their trade policy, Democrats should not try to compete with President Trump in voicing skepticism about the merits of international trade. Instead, Democrats should set out clearly the positive case for continued trade liberalization and for the rule of law in trade. Support for trade must be an essential part of any overall Democratic policy that aspires to restore and revitalize a broad American prosperity.

Democrats must reclaim for the Congress the authority over trade envisaged for it in the Constitution. For too long, the Congress has been ceding this constitutional authority to the executive branch. Under President Trump, this delegation of authority has been much abused in capricious actions imposing unilateral tariffs on U.S. trading partners for specious reasons.

The unilateral tariffs imposed by the Trump Administration must be repealed. These tariffs are in violation of U.S. obligations under the treaty that established the World Trade Organization, which requires WTO dispute settlement before taking such trade actions. In addition, these tariffs are harmful to U.S. consumers and U.S. producers alike because of the increases in import prices that result from them.

Democrats must reject Trumpian unilateralism and return to multilateralism in trade. They should reaffirm the longstanding bipartisan commitment of the United States to multilateral trade solutions and to the centrality of the multilateral WTO??based world trading system. Reliance on the basic rules of non??discrimination that are the core of the multilateral approach to trade maximizes the economic gains from trade agreements for all the countries that participate in the WTO system.

President Trump and his trade advisers have tried their best to undermine the rule of law in trade and replace it with the rule of power. They have ground the appellate process in WTO dispute settlement to a halt and cast doubt on the finality of WTO panel rulings by blocking the appointment of new judges to the WTO Appellate Body. At the same time, they have spread, as one of their many “big lies” to the American people, the fiction that the appellate judges have exceeded their treaty mandate when ruling against the United States.

Democrats must also renew the American commitment to the rule of law in trade. They should work in concert with other WTO members to find a multilateral solution that will save the independent and impartial system for judging appeals in international trade disputes in the WTO. The rule of law in world trade should be reinforced by restoring the Appellate Body and strengthening it against any future political assault.

Democrats should also join with other WTO members in modernizing the WTO. Although they were written in the 20th century, most WTO rules are still fit for the 21st century. But quite a few trade rules need updating, and, in many aspects of contemporary commerce, new rules are much needed to keep the WTO relevant to the realities of world trade.

Democrats should support the negotiation of new and better rules on digital trade, services trade, and intellectual property. New rules are also needed to facilitate investment and to ensure free and fair international competition. Better rules are required to discipline trade??distorting subsidies, including new rules forbidding the discriminatory favoring of their state??owned enterprises.

New WTO rules are also needed to provide protections against forced transfers of technology, while encouraging the lawful spread to poorer developing countries of all the new technologies they urgently need to confront environmental, health, and other global challenges. New and improved rules are likewise needed to address product standards, technical regulations, and the proliferation of other non??tariffs barriers that are increasingly substituted for tariffs and that pose protectionist obstacles to trade.

Unquestionably, there are legitimate concerns about Chinese protectionist trade practices. But Trump’s go??it??alone approach of trying to bully the Chinese with a barrage of illegal unilateral tariffs has accomplished nothing while needlessly worsening US??China trade relations. Instead of insulting our best allies and imposing illegal tariffs on them, Democrats should work closely with our allies and other trade partners in confronting China within the legal framework of the WTO.

Another one of Trump’s “big lies” about the WTO is that this cannot be done within the existing rules. Yet numerous options for challenging China under current WTO rules have not yet been tried. Joint multilateral actions in WTO dispute settlement are the best way to discipline unfair Chinese trade practices, ensure nondiscriminatory treatment of our own goods and services, and help the Chinese people move more quickly toward creating the broader market economy that will bring both them and us greater prosperity.

In addition to supporting multilateralism in trade by supporting the WTO, Democrats should also support bilateral and regional arrangements for freer trade that can ultimately lead to multilateral trade liberalization. Democrats should take another look at joining the Trans??Pacific Partnership, which President Barack Obama negotiated but which President Trump rejected on his first day in office. Return by the US to the accord should be conditioned on an agreement by the other 11 countries to implement about 20 provisions that were put on hold when Trump pulled the US out, including intellectual property protections, safeguards against the illegal taking and trade of wildlife, and more.

An openness to trade is a prerequisite to national competitiveness, but it does not guarantee it. A pro??trade policy for Democrats for 2021 and beyond must be accompanied by domestic policies that enable everyone to share in the gains from trade. Too often, the gains from trade have not been widely shared. But domestic policy, not trade policy, has been largely to blame. Democrats must do much more than has been done during the past generation to help prepare the American people to compete in an increasingly integrated and technologically advanced global economy.

Effective domestic actions to help all Americans make the most of the gains from trade by enhancing American competitiveness in the United States and in global markets are essential. Making it easier for Americans to innovate and compete at home and abroad is a crucial element to continued and broadened American prosperity.


Governments Should Rely More on the WTO in the Fight Against the Coronavirus

James Bacchus

Yet another sign of the marginalization of the World Trade Organization is the omission of any mention of it in the recent G20 statement on COVID-19. At a time when more international cooperation is urgently needed to control and conquer the spreading coronavirus pandemic, including in trade, the international institution established to oversee trade is increasingly shunted to the sidelines.

The G20 leaders acknowledged the importance of trade to addressing the pandemic in their statement at the conclusion of their emergency video conference on March 25. They promised to use “all available policy tools to minimize the economic and social damage from the pandemic.” Shockingly, however, they neglected to refer by name to the only global institutional tool they have for achieving that goal in trade. Six other international institutions were specifically cited – but not the WTO.

Going into this global fight for survival, the WTO was already badly damaged by the corrosive combination of Trumpian unilateralism and intensifying global economic nationalism. Now, because of the coronavirus, all WTO meetings have been suspended until at least the end of April. Those who see the WTO as necessarily central to world trade are left wondering what its role is now and will be going forward.

Among trade experts, ideas abound for using the WTO to help fight the pandemic. At the top of the list is the pressing need to roll back and refrain from export bans on medicines and medical supplies. At last count, 35 countries have imposed such bans. While these measures, depending on how they are applied, may be legal under WTO rules, they are inconsistent with the G20 aim to “coordinate responses in ways that avoid unnecessary interference with international traffic and trade.” They prevent limited drugs and supplies from going to where they are most needed to conduct effective coordinated global combat against the global virus, especially in the poorest countries where the outbreak may ultimately be the worst.

Making common sense also is an immediate end worldwide to all tariffs on imports of drugs and medical equipment. Many countries still impose import taxes on a whole range of medical??related goods that are needed everywhere during this pandemic. All countries must import at least some of these goods. No one country can produce all of these goods in the amounts they may eventually need. Tariffs rarely make sense, and these border taxes on imports of life??saving goods may make the least sense of all.

Other worthy ideas for WTO action that have been suggested include: promoting transparency in all national measures taken to fight the virus; waiving the “buy local” requirements that inflate the prices of government purchases in much of the world; improving trade facilitation to reduce the “red tape” costs for trading health??related products; eliminating non??tariff barriers that hinder trade in medicines and medical equipment; adopting international standards to help ensure the safety and quality of imported medical goods; giving the go??ahead to subsidies for producing the new medicines urgently needed to stop the coronavirus; reaffirming that WTO rules permit compulsory licensing of needed medicines by developing countries in these dire circumstances; and permitting health care workers to move more easily across borders.

Because the WTO operates by consensus, it can only act if all its members cooperate in deciding it should act. Generally, if even one member says “no,” nothing can happen. Quite rightly, the WTO is entirely a member??driven institution. As it stands, though, the members of the WTO are not driving it anywhere during the global crisis of this pandemic.

More than half a century in the making, the WTO was established 25 years ago to provide global solutions in trade, including in times such as these. “The virus knows no borders,” explained the G20 leaders. This transcendence of borders includes the interrelationships between the virus and trade. In trade as in all else, the G20 leaders are right in thinking we need “a united front against this common threat.”

Unavoidably, the WTO has postponed its biennial ministerial conference that had been planned for Kazakhstan in June. Yet, even with social distancing, self??isolation, and quarantines, WTO members can return the WTO to its rightful central role in world trade by pursuing these and other ideas for global solutions. They should begin by convening a virtual ministerial conference on how best to use trade to help defeat the coronavirus.