The COVID-19 pandemic has twice delayed the 12th Ministerial Conference from its original date in June 2020. Assuming the Ministerial Conference in fact takes place the week of June 13, 2022 (and isnʼt delayed by a new surge in COVID-19 infections or by other complications), there will have been a four and a half year delay from the 11th Ministerial Conference held in Buenos Aires in late 2017. Ministerial conferences are intended to be held every two years. Considering the challenges facing the World Trade Organization, many will be looking to see if this yearʼs Ministerial can help restore the WTOʼs relevancy. The effort to get positive results at the 12th Ministerial Conference has been complicated by Russiaʼs invasion of Ukraine.
The list of challenging issues is long. Fisheries Subsidies is the only new multilateral agreement under discussion. While it is nearing the finish line, negotiations have been ongoing for more than twenty years, and it is unclear the level of ambition that will be agreed to if negotiations are concluded.
There are a range of agriculture issues that have been under discussion for years. The topics under discussion include public stockholding for food security purposes, domestic support (subsidies other than export subsidies), cotton, market access, special safeguard mechanism, export prohibitions or restrictions, export competition and transparency.
The WTO Members have also been seeking to reach agreement on a response package to the COVID-19 pandemic, including on whether some form of waiver or other action is needed on intellectual property rights during the COVID-19 pandemic.
There are a host of Joint Statement Initiatives that are at various stages of progress on a plurilateral basis, with India and South Africa raising objections to plurilateral agreements being part of the WTO without consensus agreement. There are many issues that have been raised as potential subjects for WTO reform including dispute settlement, industrial subsidies, state-owned and state-invested enterprises, excess capacity, transparency and many others.
With the U.S., EU, U.K., Japan, Canada and others seeking to reduce the role the Russian Federation can play in multilateral and plurilateral organizations while its war against Ukraine continues, it is unclear what progress will be made on the trade agenda at the WTO ahead of the 12th Ministerial. For example, G7 countries, the EU and others have suspended most favored nation status on goods and services from the Russian Federation.
They have also announced that they are removing the Russian Federation from the WTO Developed Countries Coordinating Group.
Russiaʼs President Putin has indicated that he wants a revised WTO strategy by June 1 to deal with sanctions imposed by western countries.
Thus, the atmosphere for moving trade talks forward is clouded at best at the present time.
As prior Director-Generals have done for prior Ministerial Conferences, WTO Director-General Ngozi Okonjo-Iweala has been traveling the world seeking support from major countries to a successful Ministerial Conference. The Director-General will be in Washington the week of April 25, 2022. The Inside U.S. Trade article reviews the tensions caused by the Russian invasion and the resulting uncertainty about what, if any, outcomes are possible for the 12th Ministerial Conference.
“Her conversations in Washington are likely to focus significantly on the waiver and on the upcoming 12th ministerial conference, set for the week of June 13 in Geneva. If all went according to plan, the ministerial gathering was to be the venue for delivering a long-awaited agreement on fisheries subsidies, a step forward on agriculture and a pandemic response package, including a compromise IP waiver.
“But the twice-postponed gathering is poised to be derailed once again – if not actually rescheduled – by political and diplomatic tensions arising from Russiaʼs invasion of Ukraine. Whether WTO members will be able to produce deals at MC12 is in doubt as the WTO has had to adapt to conducting its negotiations around the tensions. Okonjo-Iweala said last week that plenary meetings of the full membership have become more difficult to hold, with members opting instead for small-group or bilateral meetings.”
There have also been efforts to develop a factual background to support some elements of a possible WTO reform agenda. The U.S., EU and Japan have been working over the last few years on potential modifications to the current Subsidies and Countervailing Measures Agreement to address some of the major distortions in industrial goods trade caused by Chinaʼs state-directed economy — industrial subsidies, state-owned and state-invested enterprises, global excess capacity. China has indicated a willingness to discuss subsidies if all subsidies (including agricultural subsidies) are included. On April 22, 2022, a report prepared by the staff of the IMF, OECD, World Bank and WTO was released. The Executive Summary of the report (pages 3-4) is copied below.
“Dealing constructively with subsidies in global commerce is central to G20 leadersʼ goal of reforming and strengthening the multilateral trading system. The growing use of distortive subsidies alters trade and investment flows, detracts from the value of tariff bindings and other market access commitments, and undercuts public support for open trade. Sharp differences over subsidies are contributing to global trade tensions that are harming growth and living standards.
“There are good reasons why this issue, which has challenged policymakers for decades, should be addressed now. Among them: distinguishing ʻgoodʼ and ʻbadʼ subsidies is analytically and politically fraught, while the unilateral responses available to trading partners (such as ʻtrade defenseʼ measures) are a limited deterrent. The renewed drive toward industrial policies to promote ʻstrategicʼ sectors may distort international competition, especially against smaller, fiscally constrained developing countries. With the frequency and complexity of distortive subsidies increasing, even as the need grows for active policies to address climate, health, food, and other emergencies, subsidies and the subsidies debate have brought significant discord to the trading system. The issue demands global attention and cooperation.
“Subsidies are common in all sectors, used by countries at all stages of development, take many forms, and affect all countries. Despite important gaps in our information about subsidies, the broad landscape is clear. Most merchandise trade occurs in products and markets in which at least one subsidized firm operates. National and sub-national entities provide subsidies through—to name a few forms—direct grants, tax incentives, and favorable terms for financing, energy, land, or other inputs. Many subsidies are explicitly aimed at the important task of correcting market failures and may do this well. Many others, however, are designed in ways that do little to advance their stated objective, or do so at high domestic cost or with harmful effects on the global commons and on other countries, notably the poorest and most vulnerable countries. International cooperation can reduce the overall use of subsidies and improve their design.
“Existing international rules provide a strong basis for regulating subsidies. International subsidy disciplines were progressively strengthened, notably in 1995 with the WTO Agreement on Subsidies and Countervailing Measures and the WTO Agreement on Agriculture, although the agenda to negotiate detailed subsidy rules for services has been largely set aside. Many major countries also adhere to the disciplines of the OECD Export Credit Arrangement. Some recent free trade agreements have also gone beyond WTO rules, containing, for instance, provisions disciplining the behavior of state-owned enterprises and more extensive lists of prohibited subsidies.
“Still, both longstanding and recently-exposed gaps remain in these international rules. Extensive trade distorting domestic farm subsidies are still allowed in many cases, and WTO members have yet to agree special disciplines for harmful fisheries subsidies that contribute to overfishing. The recognition of gaps is shaped by such developments as the emergence of global value chains; digital markets and related network concentration effects; the global importance of economies in which the state plays a central role, and of international SOEs; the urgent challenge of climate change; and the recognition that well-crafted subsidies can be an important part of the public response to economic and health emergencies. These developments make the issue of subsidies in the trading system both more complex and more urgent. Investment incentives are widespread, often at sub-national levels where they can be hard to monitor. Much of this debate occurs in the context of the industrial sector. This paper does not advocate particular outcomes. However, international cooperation that delivers improved subsidy disciplines, improves business certainty, and reduces trade frictions would be superior to unilateral actions and should be expected to reduce their use.
“In many of these areas, better information, more extensive objective analysis, and regular dialogue can help governments accelerate reform of their own subsidies and expedite negotiations toward improved international disciplines. Careful, high-quality economic analysis is needed to understand not only how well current subsidy programs meet domestic policy objectives, and at what cost, but also how they spill over onto international markets and how they interact with international policy goals, like climate mitigation. That effort must improve the information available on existing subsidy programs and their effects, especially on trading partners. It should feed into a structured inter-governmental dialogue, informed by analysis, and lead to a more common perspective on the appropriate roles of subsidies that, in turn, facilitates the development of updated norms and standards. Improved transparency and analysis, more robust intergovernmental consultation, and strengthened international rules can be expected to reduce the use of harmful subsidies and to improve their design—leading to better outcomes with fewer negative effects at home or abroad.
“The international organizations (IOs) authoring this report can strengthen their individual and joint work to support governments in this endeavor. While the brunt of this work lies with finance ministries, trade ministries, and sectoral and specialized agencies of national governments, international organizations have key roles to play. The four authoring institutions are examining ways to help, individually and jointly, such as by collecting, organizing, and sharing data, coordinating analytical work agendas to develop methodologies to assess the cross-border effects of different forms of subsidies, and supporting inter-governmental dialogues. This will involve reaching out to and working with other international institutions as well.”
The report also contains a list of some recent international reports relating to subsidies (Box 1 on page 6, copied below).
“Box 1. Selected Recent International Reports Relating to Subsidies
“Noting that COVID-19 caused severe stress for tourism industries in the region and around the world, the Asian Development Bankʼs Asian Economic Integration Report (ADB, 2021) examined measures to support tourism in selected ADB developing members. It draws positive lessons to help governments maintain critical levels of tourism infrastructure and to facilitate a rapid rebound in a sector that is key to many economies.
“Global Trade Alert set out to inventory subsidies of the “major players”—China, the EU, and the United States (Evenett and Fritz, 2021). It finds that in 2019, more than three-fifths of global goods trade was in products and on trade routes in which one or more subsidized Chinese, EU, or U.S. firms compete. When major player introduces a new subsidy, the others usually respond within six months with their own subsidy.
“The 2021 FAO, UNDP, and UNEP report, A Multi-Billion-Dollar Opportunity: Repurposing Agricultural Support to Transform Food Systems, finds that some forms of support to agricultural producers are distortive and socially and environmentally harmful. It sets out a six-step guide for repurposing the provision of public goods and services for agriculture.
“The World Resources Institute 2021 report, Repurposing Agriculture Subsidies to Restore Farmland and Grow Rural Prosperity, likewise argues that public agricultural subsidies failed to achieve their stated objectives but that smart agricultural subsidies can restore degraded land and rural economies.
“IMF (2020) advises governments on raising efficiency and managing other challenges related to SOEs— frequent recipients or providers of subsidies. It calls for global principles for multinational SOEs, noting that SOEs account for 20 percent of assets of the worldʼs largest 2,000 firms. Some IMF Article IV country reports have called for specific reforms of farm subsidies or industrial subsidies.
“As part of its ongoing work on agricultural support, OECD (2021a) provides country-comparable data and information and analyzes whether current support is helping to meet the triple challenge facing food systems (food security and nutrition, environmental sustainability, and livelihoods). OECD (2019a) and OECD (2019b) examine support received by the largest firms in the aluminum and semiconductor value chains; these reports shed light in particular on support provided through the financial system; current work also explores the environmental harm that can arise from subsidies.
“The case for international cooperation on subsidy disciplines was previously reviewed in WTO (2006), which also examined existing WTO subsidy disciplines. A recent World Trade Report (WTO, 2020) showed that international cooperation can shape the pursuit of digital development more effectively, while minimizing cross-border spillovers from national policies. WTO Trade Policy Reviews have triggered extensive discussions of subsidy policies in individual WTO members.
“Noting the growing role of the state in the context of COVID-19 and climate change, WEF (2021) calls for international cooperation to tackle these global challenges and to address cross-border spillovers from state intervention. It outlines the current state of play and proposes ways forward across subsidies, state ownership and control, government procurement, investment screening, and trade remedies.”
The report from the four organizations was supported by a paper published from former WTO Deputy Director-General Alan Wm. Wolff last week, part of a forthcoming book World Trade Governance: The Future of the Multilateral Trading System.
At most the staff report and the paper from former DDG Wolff support the need for reexamining subsidy disciplines. Any such reexamination will take years to complete but could be part of an announced package of WTO reform topics to be addressed going forward if there is agreement on such a list.
The week of June 13, 2022 and the 12th Ministerial Conference is just eight weeks away. It is unclear what, if any, package of documents will be ready for adoption/release during the 12th Ministerial Conference in Geneva. In a member driven organization with a consensus system being the norm outcomes among 164 Members with dramatically different interests are hard to achieve. Thus, there has been limited progress in the past Ministerials. The Russian war in Ukraine adds a layer of uncertainty to what can be achieved at the Ministerial Conference in June this year.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.