DEPUTY DIRECTOR-GENERAL ALAN WM. WOLFF

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The Role of Mid-Level WTO Members in Combatting the COVID-19 Pandemic
Remarks of Alan Wm. Wolff, Deputy Director-General, World Trade Organization
At a virtual meeting

The world economy along with the world’s peoples have been attacked by the COVID-19 pandemic.  The responses have been both national and international. The national measures have included trade-restrictive measures, usually in the form of export restrictions on medical goods and in some cases on food, and trade facilitating measures, in the form of suspension of tariffs and internal taxes on imports, easing standards and standards conformity requirements.  Subsidies play an important part as well. 

The collective responses have consisted of declarations of common purpose along with, for trade, increased WTO monitoring and collection of notifications to yield greater transparency.  The WTO has provided its analysis of the impact of the pandemic on trade in its recent Trade Forecast.  The Forecast shows a trade decline likely this year of between 13% to 32% and a recovery in 2021 depending on circumstances.  The WTO has enhanced its cooperation with other multilateral institutions such as the WHO, the FAO, the IMF and the WCO. 

The adverse impact on world trade has been the most severe since the 2007-08 financial crisis and is likely to exceed that downturn.  The disruptions have been global, which differs from the financial crisis and supply as well as demand has been affected.  Global value chains have been disrupted, as factories have shut down to protect workers.  A suspension of most of commercial air transportation for travelers has substantially destroyed the capacity for the air freight of goods.  The shutdown of economies has crushed demand so that ships are avoiding scheduled deliveries.  The absence of migrant labor due to closed borders threatens the planting and harvesting of some crops. 

The economic effects of the pandemic are particularly damaging for developing countries, as the margin of resilience provided by financial resources, including foreign exchange reserves, is very limited.  Trade finance, which has not recovered fully from the Financial Crisis, appears to have been sharply curtailed.  The ability of developing countries to produce or compete for scarce supplies of medical goods is far more limited.

Impact of Pandemic on Saudi Arabia

A recent WHO update (4 May 2020) records that Saudi Arabia has reported 28,656 cases of COVID-19 and 191 deaths due to the virus.  The pandemic has spread extensively over the past 2 weeks, with the number of cases virtually doubling over a 10-day period alone. In aggregate, the Arab region had recorded approximately 87,000 COVID-19 cases. Though Arab countries have ramped up testing and implemented health protocols, shortcomings in sanitation infrastructure and resource endowment may complicate control efforts. Over the past few weeks, many countries within this region — including Saudi Arabia — have ramped up testing rates while simultaneously relaxing stringent health-related social restrictions.

The Saudi Arabian economy is currently forecast to contract by 2.3% for 2020 from an earlier projected growth of 2.2%.  In a recent interview, the Saudi Finance Minister stated that oil revenues for Q1 of 2020 had dropped by approximately 22% compared to Q1 of the previous year. Stringent domestic containment measures have restricted civilian mobility with the effect that household consumption and producer output levels have dropped. Contractions in consumption levels spells consequences for the SA economy.  Regional ILO projections indicate that the Arab region stands to be particularly affected, with closures and sector fragility expected to increase unemployment rates.  Estimates predict working hours to contract by 8.1% in aggregate over the 2nd  quarter of 2020, in this region. This equates to approximately to a job loss for 5 million full time workers.

Many nations have implemented substantial fiscal packages and monetary policy valued at approximately USD 8 trillion as of mid-April, including the reduction of interest rates and relaxed minimum reserve requirements. The Saudi Arabian Monetary Authority (SAMA) reduced interest rates twice in March and has called on commercial banks to facilitate loan restructuring for firms facing substantial stress due to the COVID-19 induced slowdown. The role of International Financial Institutions is pivotal in this context. The IMF in particular has pledged a five-fold assistance to COVID-19 relief that involves the provision of emergency financing, immediate debt service relief, enhanced liquidity measures and the adjustment of existing lending arrangements.  The World Bank Group in turn has announced a USD 14 billion package addressing the immediate health and social consequences of the outbreak.

Saudi Arabia’s pledge of EUR 500 million, announced during the EU Commission’s Coronavirus fundraising conference, signals its intent to contribute towards multilateral efforts to curb the pandemic spread. The Public Investment Fund (PIF) — Saudi Arabia’s sovereign wealth currently valued at USD 320 billion — may also play a role in this context by investing in initiatives that enable global recovery efforts. Furthermore, efforts to combat the virus and promote recovery can facilitate economic diversification efforts within the region thereby increasing growth prospects and decreasing exposure to similar shocks in the future

Countries are beginning to open their economies.  As the storm is still raging and threatens a return through a second wave, the time now is for action rather than reflection.  There is a possibility of heightened international cooperation to foster multilateral responses or the alternative, there can be increased global fragmentation.  At a high level, international cooperation has been supplied by the G20, under the current chairmanship of Saudi Arabia. The G20’s messaging has set the tone more generally for the direction that the trade response to the pandemic should take — that trade measures should be “targeted, proportionate, transparent and temporary”.  But the G20 does not regulate.  International trade obligations are the province of the World Trade Organization (the WTO). 

For the multilateral trading system, there are three phases of response to the current challenge: first, addressing the measures nations (including the European Union) put into place or should put into place to deal with the global health emergency;  second, cooperation to support the needed economic recovery from the current devastation, and third assuring that the multilateral trading system is more resilient and effective in underwriting future shared global economic growth. 

What is needed now

The emerging steps taken at greater international cooperation is taking the form of WTO Member initiatives.  These consist of:

  • the Singapore-New Zealand declaration of principles to keep their markets open, joined in by 5 other WTO Members;
  • a Canadian-led initiative of 47 countries (counting the EU Member States separately), pledging openness and good practices with respect to world agricultural trade; and
  • a Swiss-led initiative, supported by 42 countries, pledging to lift export restrictions imposed in response to the crisis as soon as possible, encouraging the WTO to work on concrete actions to foster the cross-border flows of medical supplies, services and equipment, and to preserve agriculture supply chains and enhance food security.  The signatories, supported by most mid-level countries including Saudi Arabia, pledge not to impose export restrictions on food.   

Each of these initiatives is currently being circulated at the WTO with proponents seeking additional adherents.  It is noteworthy that it is mid-sized countries that have to date taken collective initiatives.

Numerous suggestions have been made by seasoned trade experts (some of which have already been adopted by Singapore and New Zealand in their bilateral agreement which is open to all).  The following are options for consideration for immediate national and collective responses to COVID-19:

Assuring complete transparency.

    • More comprehensive and prompt notification of measures — notifications using today’s technologies can be simultaneous with the promulgation of measures
  • Enhanced monitoring by the WTO.
  • In emergencies, taking up Member’s specific trade concerns as a matter of urgent concern.
  • Making COVID-19 trade-restrictive measures subject to prior or prompt consultation.
  • Measures taken should conform with G20 principles as well as WTO obligations, but that is insufficient.  They should be time-limited by inclusion of sunset clause. Flexibility would exist for extension for serious need.
  • Nonconforming measures should at a minimum be rolled back and preferably eliminated.
    • Tariffs should be suspended on relevant medical supplies, medical equipment and pharmaceuticals
    • Enhanced trade facilitation efforts can include green channels, pre-clearance of shipments, sensible relaxation of conformity assessment procedures and other aspects of the application of standards.
    • Facilitating cross-border movement of personnel for essential services, including medical services and farm labor.

In addition, a U.S. think tank has suggested:

  • Formation of a WTO Member COVID-19 Emergency Response Committee (ERC), to facilitate prompt formation, a less formal structure, such as a Task Force or other format could be used.

For later this year

Given that the duration of the pandemic may be longer than hoped for, as in the last 250 years the ten pandemics that have occurred have each had at least a second wave, more intensive collective action may be possible in the last half of 2020 and early 2021.  This could include in varying degrees, issuing lists of best practices, adoption of joint initiatives by a greater number of WTO Members, and reaching understandings in a number of key areas:

Allocating scarce supplies, including through adopting:

    • Best practices for sharing IP for medical supplies, equipment, as well as test data and formulae for vaccines and medications in a manner that fosters development of vaccines and their availability worldwide, and
  • An understanding on rolling back trade-restrictive measures affecting food, goods and services, no matter the form taken (including domestic procurement mandates, etc.)
  • An understanding on food security assured through more open borders and not through the imposition of export restrictions or accumulating excessive stocks.
  • A negotiated multilateral protocol that permits the safe opening of national borders for travel for business, priority immigration and cultural purposes (e.g. for the haj).  If an agreement is not practical within months, a code of conduct or statement of best practices could be agreed.
  • An accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form), which could address;
      • Procedures including prior notice and consultation on their justification;
      • Conditions as to how they are applied, including the requirement that they be nondiscriminatory;
      • A process for affected countries to register specific trade concerns, and
      • Providing for limits on the duration of measures.
  • Building on SPS and TBT best practices to reach a higher level of regulatory co-operation and further reduce trade frictions;
      • Facilitating cross-border movement of personnel for essential services, including medical services and farm labor; and
      • Coordinated efforts to enhance manufacturing of medical equipment and supplies.

Measures to Assist in the Economic Recovery

It is not too early to consider trade-related Recovery Measures.  Those which might be of service, include

      • Negotiated tariff reductions and elimination where possible — zero tariffs could be considered  for pharmaceuticals, information technology products, environmental goods, and products that already bear a low tariff;
      • Facilitating the cross-border supply of services;
      • Taking steps to restore trade finance;
      • Providing stronger support for implementation of Trade Facilitation Agreement;
      • Building on SPS and TBT best practices to reach a higher level of obligation;
      • Guidelines with respect to heightened reviews of inward investment;
      • Concluding successfully E-Commerce negotiations;
      • Unwinding the deeper intrusion of the state:
    • An enhanced understanding on the conduct of enterprises that are state-influenced; and
    • Disciplines on domestic industrial subsidies and domestic support for agriculture.
  • A concerted effort by WTO Members to support the successful implementation of the African Continental Free Trade Agreement (AfCFTA).

WTO reform

The WTO as an institution must evolve toward a forum for greater cooperation.  Governance of any organization has three functions — legislative, executive and “judicial” (dispute settlement).  Dispute settlement by default dominated much of the 25-year history of the WTO.  There have been no successful broad multilateral negotiations, such as the eight multilateral rounds that preceded and finally established the WTO. 

The legislative function has been frozen by lack of the required consensus of the entire body of 164 Members for efforts beyond the praiseworthy tariff elimination agreements (on pharmaceuticals and information technology goods, respectively, both of which are nondiscriminatory plurilateral agreements), a ban on agricultural export subsidies, and the Trade Facilitation Agreement.  The WTO era has been characterized by plurilateral progress rather than through fully multilateral agreements.  The current method of moving forward is taking the form of Member initiatives supported by coalitions of the willing.  This was a major result of MC11, the 2017 Ministerial Conference held in Buenos Aires.   This is fine as far as it goes, but if that is all that is to occur with respect to rule-making at the WTO, the rules will not be universal.  Ecumenicism will have replaced multilateralism.  The WTO would be limited to being a forum for affinity groups.

As for the executive function, it is truncated.  It is far less than would be found in any parliamentary government.  Committee chairs appointed often for a year at a time convene committees and provide, after consultation with Members, an agenda for meetings.  The WTO Secretariat is ostensibly present to provide technical support, for what is often said to be a Member-driven organization. 

Dispute settlement took the lion’s share of the popular spotlight for most of the 25-year history of the WTO and has taken the lion’s share of the notoriety as the agreed system collapsed.  As a respected recent European Member of the now defunct Appellate Body has said, it is unwise to expect any movement toward a solution that all would support for some years to come.  What exists instead is an interim arrangement subscribed to by about half the litigating Members.

The key problem of the WTO is to be found in its provisions for governance, although this may reflect an underlying lack of consensus.  That said, it has done as well if not better than any broad multilateral institution in history. 

How to move forward?  One possibility is to make sure that there is a policy planning function for the multilateral trading system (MTS).  It can take many forms.  It could be a standing committee of the WTO, less formally a Task Force, or an advisory group to the Chair of the General Council (the standing decision-making body of the WTO when a Ministerial Conference is not in session).  It can, or even should, be like distributed computing.(1)  There should be nodes, policy planning units (even consisting of one person each), in national capitals or in missions located in Geneva, composed of individuals having the interest and capacity to contribute.  This network should be dedicated — that is, an assignment undertaken to the exclusion of daily responsibilities — for planning the future of the multilateral trading system.   

Conclusion

As Chair of the G20, Saudi Arabia has a golden opportunity to lead by example and by deeper engagement in the work of the WTO.

I would be happy to try to answer any questions that you may have.

Notes:

  1. distributed system is a system whose components are located on different networked computers, which communicate and coordinate their actions by passing messages to one another. The components interact with one another in order to achieve a common goal. back to text

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