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G-20 Ministers Say COVID-19 Emergency Responses Trigger WTO Exceptions: Most Press Reports Got Meaning of G-20 Trade Ministers’ Statement Wrong

By Lori Wallach

Many press reports are describing yesterday’s G-20 trade ministers’ statement as a commitment NOT to violate World Trade Organization (WTO) rules with emergency COVID-19 responses.

The actual statement says something quite different: The G-20 countries deem actions countries take to battle the crisis as subject to WTO exceptions, and thus permissible even if they do violate the WTO’s rules.

Those fluent in GATTese, the arcane technical language of trade wonkery, will have noticed the key words in yesterday’s G-20 Trade Ministers’ statement:

We agree that emergency measures designed to tackle COVID-19, if deemed necessary, must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules. [Emphasis added]

The statement says that G-20 countries agreed that COVID-19 emergency actions meet the requirements to trigger the WTO’s general exceptions, which are found in GATT Article XX.

These terms provide countries a justification for having policies that would otherwise violate WTO rules. As we’ve previously noted, WTO tribunals rarely allow countries to apply the exceptions. Usually, the tribunals rule that a domestic policy fails because it cannot meet the “chapeau” (the overarching initial paragraph) of the exceptions or that a policy is not “necessary” in a narrow WTO-required meaning that has been fabricated by tribunalists over decades of WTO rulings. Here are the relevant parts of GATT Art. XX:

Article XX (General Exceptions): Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: …
(b) necessary to protect human, animal or plant life or health;…
(j) essential to the acquisition or distribution of products in general or local short supply; Provided that any such measures shall be consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products, and that any such measures, which are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the conditions giving rise to them have ceased to exist.

The G-20 trade ministers statement provides a bridge over all three quicksand pits that normally sink the use of these exceptions.

As far as the chapeau language, the statement makes clear that COVID-19 emergency measures “do not create unnecessary barriers to trade.” To deal with clarifying what is “necessary” to satisfy GATT Art. XX(b), the statement makes clear that is a matter for countries to self-designate. And with respect to the principle of countries having equal shares of international supply in GATT Art. XX(j), the statement notes that emergency measures are not deemed to be a “disruption to global supply chains.”

And in case a reader is not fluent in GATTese and does not have “ah ha, Art. XX is in the house” bells going off in their heads, the last clause explicitly states that emergency measures “are consistent with WTO rules.” Understanding that requires only attentiveness to the grammar – that clause is attached with an “and” – separating it from the list of specific GATT Article XX satisfiers connected by “ors.”

Regardless, some press reports got it totally wrong – by taking part of the relevant G-20 ministers’ text as a quote, and then supplying their own meaning:

The trade ministers included additional language, promising any emergency measures would "not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules. -Politico (You can see a summary outside the paywall in G-20 calls for open trade, sort of,” Politico Pro-Morning Trade, March 31, 2020 or full story at “G-20 trade ministers pledge to help medical goods trade,” Politico, Doug Palmer, March 30, 2020.)

Trade ministers from G20 countries on Monday said any “emergency measures” to address the coronavirus pandemic must be temporary and consistent with World Trade Organization rules. - Inside U.S. Trade (“G20 trade leaders commit to WTO-consistent measures in response to COVID-19,” IUST, Isabelle Icso, March 30, 2020.)

Some news media got it right though. They understood what the statement actually meant and quoted the relevant sentence in context:

In their joint statement, the G-20 trade chiefs appeared to offer scope for such moves by saying they can be compatible with World Trade Organization rules. “We agree that emergency measures designed to tackle Covid-19, if deemed necessary, must be targeted, proportionate, transparent, and temporary, and that they do not create unnecessary barriers to trade or disruption to global supply chains, and are consistent with WTO rules,” the ministers said. – Bloomberg  (“G-20 Trade Chiefs Defend Open Supply Chains Amid Virus Fight, Bloomberg, Jonathan Stearns and Bryce Baschuk, March 30, 2020, updated March 31, 2020.)

Unlike much trade-related misreporting and spin, this instance does no favors to team trade-status-quo. It does not take great imagination to envision the thought bubble over the heads of most people who saw the wrong stories: ‘Meeting trade rules is a priority over saving lives? !@#$%^&* trade…’

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Friday’s WTO Development: Did They Think No One Would Notice?

By Lori Wallach

With everyone’s attention focused on the COVID-19 crisis, it’s understandable that a Friday trade announcement could be missed. You can find it filed under “throw fuel on the fire,” and it’s worth a look.

On March 27, a group of 16 World Trade Organization (WTO) members announced a new agreement to evade the U.S. shutdown of the WTO’s enforcement regime.

Sure, countries may be interested in mechanisms to finalize the settlement of trade disputes among themselves with the WTO’s system beached. And some may be looking for ways to try to poke the United States in response to its effective shutdown of the WTO’s enforcement regime.

The hitch is that this new “Multi-Party Interim, Appeal Arbitration Arrangement” presumes to use WTO staff and funding to do so. And, implementation of its terms effectively would alter various WTO legal authorities without recourse to the WTO’s amendment procedures and required approvals by the WTO’s signatory countries.

You can be a supporter of the WTO and still wonder: What were they thinking?!

Effectively, the proposed workaround doubles down on the sort of concerns that led the United States to finally say “enough” last year and block approval of new “judges” for the WTO’s highest review body, the Appellate Body (AB). That U.S. move shut down the WTO enforcement system; Rulings on disputes could no longer be finalized because the AB no longer had a quorum.

Starting with the second Bush administration through the Obama era and until today, U.S. officials have protested that the AB was operating outside the mandate actually agreed by member countries and making up new WTO obligations to be imposed on countries that never agreed to such terms. With the United States being the largest contributor to the WTO budget, GOP and Democratic administrations alike also have protested that U.S. funds were being squandered to support such malpractice.

Some other WTO member nations less well situated to lodge public criticisms share concerns about WTO dispute bodies stretching the actual rules, self-designating what should be one-off decisions on specific disputes as binding precedent and deciding issues not raised by the disputing parties.

For those of us who oppose the many WTO rules unrelated to trade – from new monopoly protections for pharmaceutical firms to limits on countries’ domestic food safety and financial regulation – having the WTO’s enforcement system out of business is not necessarily bad news.  WTO members are required to “ensure the conformity of their laws, regulations and administrative procedures” with WTO rules that impose limits on countries’ environmental, consumer and other protections while obliging countries to provide special protections for various privileged business sectors. When the WTO’s enforcement system is in full operation, it can authorize millions in trade sanctions against countries that do not comply with these dictates.

So, countries tend to roll back the laws attacked at the WTO. Developing countries sometimes do so at the mere threat of a challenge, so as to avoid allocating limited government resources to an expensive legal defense. The United States weakened Clean Air Act rules, dolphin protection laws and Endangered Species Act regulations after successful WTO attacks. As well, the country-of-origin labels on meat that consumers relied on in American grocery stores were gutted after the WTO classified them as “illegal trade barriers” and authorized $1 billion in sanctions.

Recently, WTO enforcement action have facilitated a circular firing squad over climate change efforts. The European Union and Japan successfully challenged Canadian incentives on renewable energy. The United States won a case against a solar power program in India. Then India successfully attacked renewable energy programs in several American states. Then China filed a case in 2018 against additional American renewable energy measures.

Clearly there are problems with the WTO. If you join me in believing that there should be good global trade rules and that those rules should be enforced in a fair and transparent way, then this latest enforcement workaround agreement – signed by the European Union, China, Brazil, Mexico, Canada, Australia, Singapore, Chile, Colombia, Costa Rica, Guatemala, Hong Kong, New Zealand, Norway, Switzerland and Uruguay – is deeply counterproductive.

Under this agreement, some WTO countries simply decide to alter the authority and roles of the WTO’s Director General, Secretariat and various bodies. And, the new agreement presumes that WTO funds will cover the costs of operating and providing arbitrators for the new system. The new agreement’s text is quite clear:

Article. 7:  The participating Members envisage that appeal arbitrators will be provided with appropriate administrative and legal support, which will offer the necessary guarantees of quality and independence, given the nature of the responsibilities involved. The participating Members envisage that the support structure will be entirely separate from the WTO Secretariat staff and its divisions supporting the panels and be answerable, regarding the substance of their work, only to appeal arbitrators. The participating Members request the WTO Director General to ensure the availability of a support structure meeting these criteria.  (Emphasis added.)

The WTO’s Director General and Secretariat also are assigned additional roles in screening the “judges” for the new system and providing various notices to countries and WTO bodies.

Annex 2, Article. 3: …this pre-selection process will be carried out by a pre-selection committee composed of the WTO Director General, and the Chairperson of the DSB, the Chairpersons of the Goods, Services, TRIPS and General Councils…

Article 6: …The WTO Director General will notify the parties and third parties of the results of the selection…  

Annex 1, Art. 5: The arbitration shall be initiated by filing of a Notice of Appeal with the WTO Secretariat…

Plus, the new text provides no mechanism for funding the new appellate arbitration system nor imposes any financial obligation on countries that opt in. But it does read in WTO provisions that require dispute settlement expenses be met from the WTO budget. For instance:

Article. 3: The appeal arbitration procedure will be based on the substantive and procedural aspects of Appellate Review pursuant to Article 17 of the DSU…; Annex 1, Art. 11: …the arbitration shall be governed, mutatis mutandis, by the provisions of the DSU and other rules and procedures applicable to Appellate Review; and Annex 2, footnote 12: … current or former Appellate Body members may be nominated as candidates.

Notably, the WTO Dispute Settlement Understanding’s provision most relevant to this funding question, namely DSU Article 17.8, ostensibly requires approval by the WTO’s General Council, i.e., the WTO member countries. Hum…

Ironically, the new agreement includes rhetoric about the countries’ commitment to finding a solution to problems with the WTO’s dispute settlement regime. It hardly seems like a winning strategy for an ad hoc group of 16 WTO members, following no rules whatsoever (not even WTO rules for plurilateral agreements) and without approval by most WTO member nations, to presume to create new authorities and roles for the WTO staff and new obligations for the expenditure of the funds other nations contribute to operate the WTO. 

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Online Retailers’ Abuse of Trade Loophole Endangers Consumers

By Melanie Foley

You do your research to find the safest infant car seat on the market and order it on Amazon. But the product that arrives at your door from China may be a knockoff. You might not even know, and the shipment almost certainly has not been inspected.

Or consider what happens when you order a high-end bicycle from Amazon. It is shipped with hundreds of others on a containership from China to an “unboxing” warehouse in Canada. There, your bike is put into its individual shipping box and sent to you. Why this seemingly useless and certainly wasteful extra step? Unlike the local shop offering the same bike, this maneuver allows Amazon to dodge border taxes and safety inspections.

Increasingly, counterfeiters and some of the world’s largest online retailers like Amazon are exploiting a loophole in U.S. trade law. Since 1938, U.S. residents have been allowed to bring into the country a “de minimis” amount of goods without paying border taxes or being subject to standard customs inspections or documentation.

The idea was for people making purchases while traveling abroad to avoid cumbersome paperwork and for customs officials to be able to focus on large-value commercial shipments. But the explosion of online retail changed the dynamic dramatically. Today, more than one million packages arrive daily via air alone from China for consignment to consumers who made purchases online.

Add to that a dramatic increase in the value of goods allowed to skirt normal inspections and other customs processes. The United States now has one of the highest de minimis levels in the world. European countries allow less than $200. Canada, Japan, Mexico and many other nations allow even less.

The online retailers also petitioned U.S. Customs and Border Protection (CBP) to consider the ultimate consumer as the official importer granted the daily $800 waiver, even though the retailers make the sale and bring in massive ocean containers of goods worth well over the $800 per day de minimis value to fulfill orders.

Anything from an Amazon fulfillment center in China could come in this way. But a primary method Amazon uses — and the new cottage industry of “third party logistics” firms that has emerged to teach companies how to take advantage of the system — is to have warehouses just across the border in Mexico or Canada to which they ship containers of products from China and other countries. The importers pay no duties when shipping to the warehouse because the good is deemed a “pass through,” as its final destination is the United States. When an order is received, warehouse staff pick, pack and put individual packages on a truck. The truck’s manifest lists them all as separate imports, so when the truck makes the short hop across the border, it clears customs using the de minimis entry process. No duties are paid or inspections done. Then the packages are dropped off at a U.S. post office or other shipper to be sent to online customers.

Customs officials are overwhelmed with the tsunami of small packages that makes it nearly impossible to effectively screen even for contraband in the form of illegal drugs or counterfeit products, much less to ensure imported products meet U.S. safety standards.

A 2019 intensified spot check operation by CBP found “discrepancies” — including spoiled food, opioids, street drugs, fake passports, gun parts and counterfeits — in 14% of parcels from China and Hong Kong.

The counterfeits are not just fake Gucci handbags. They include automotive parts that don’t meet consumer safety standards, such as airbags, brake pads and seatbelts. Packages have been found with fake prescription drugs lacking the active ingredients, children’s toys laced with lead and cosmetic products containing arsenic and human waste.

CBP reports that of the contraband products seized in 2016, 16% posed “direct and obvious threats to health and safety.”

This loophole is clearly a danger for consumers, but it also further tips the scales against brick-and-mortar stores, which, unlike the online retailers exploiting this loophole, must pay applicable tariffs on imports beyond the $800 per day and are the official importer responsible for ensuring products are legitimate and safe. Plus, the tax-dodging this system enables amounts to a significant revenue loss for the U.S. Treasury.

The Global Trade Watch (GTW) division of Public Citizen is raising this issue with Congress to pressure the Trump administration to fix the loophole. The administration has the authority to fix the problem with fairly straightforward regulatory changes. The question is, will it?

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