[Senate Hearing 116-516]
[From the U.S. Government Publishing Office]
S. Hrg. 116-516
WTO REFORM: MAKING GLOBAL RULES
WORK FOR GLOBAL CHALLENGES
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HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JULY 29, 2020
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-497-PDF WASHINGTON : 2022
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COMMITTEE ON FINANCE
CHUCK GRASSLEY, Iowa, Chairman
MIKE CRAPO, Idaho RON WYDEN, Oregon
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
TIM SCOTT, South Carolina ROBERT P. CASEY, Jr., Pennsylvania
BILL CASSIDY, Louisiana MARK R. WARNER, Virginia
JAMES LANKFORD, Oklahoma SHELDON WHITEHOUSE, Rhode Island
STEVE DAINES, Montana MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
BEN SASSE, Nebraska
Kolan Davis, Staff Director and Chief Counsel
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
WITNESSES
Hillman, Jennifer A., senior fellow for trade and international
political economy, Council on Foreign Relations; and professor,
Georgetown University Law Center, Washington, DC............... 6
Graham, Thomas R., partner, Cassidy Levy Kent, Washington, DC.... 8
Lane, Laura J., chief corporate affairs and communications
officer, UPS, Washington, DC................................... 10
Glauber, Joseph W., Ph.D., senior research fellow, International
Food Policy Research Institute, Washington, DC................. 11
Kuruc, Michele, vice president, ocean policy, World Wildlife
Fund, Washington, DC........................................... 13
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Glauber, Joseph W., Ph.D.:
Testimony.................................................... 11
Prepared statement........................................... 35
Responses to questions from committee members................ 42
Graham, Thomas R.:
Testimony.................................................... 8
Prepared statement........................................... 44
Responses to questions from committee members................ 44
Grassley, Hon. Chuck:
Opening statement............................................ 1
Prepared statement........................................... 51
Hillman, Jennifer A.:
Testimony.................................................... 6
Prepared statement........................................... 52
Responses to questions from committee members................ 77
Kuruc, Michele:
Testimony.................................................... 13
Prepared statement........................................... 89
Responses to questions from committee members................ 95
Lane, Laura J.:
Testimony.................................................... 10
Prepared statement........................................... 104
Responses to questions from committee members................ 107
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 112
Communications
American Farm Bureau Federation.................................. 115
Center for Fiscal Equity......................................... 116
Stewart, Terence P............................................... 123
WTO REFORM: MAKING GLOBAL RULES
WORK FOR GLOBAL CHALLENGES
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WEDNESDAY, JULY 29, 2020
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:17
a.m., in Room SD-215, Dirksen Senate Office Building, Hon.
Chuck Grassley (chairman of the committee) presiding.
Present: Senators Crapo, Thune, Portman, Toomey, Cassidy,
Lankford, Wyden, Carper, Brown, Whitehouse, Casey, Warner,
Whitehouse, Hassan, and Cortez Masto.
Also present: Republican staff: Nasim Fussell, Chief
International Trade Counsel; Mayur Patel, International Trade
Counsel; and Jeffrey Wrase, Deputy Staff Director and Chief
Economist. Democratic staff: Joshua Sheinkman, Staff Director;
and Jayme White, Chief Advisor for International
Competitiveness and Innovation.
OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
IOWA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order. I want to
welcome our witnesses. Today, we are fortunate to have some
very smart people who can provide insights on making an
important institution--the World Trade Organization--work
again.
When the WTO works right, Americans benefit, plain and
simple. For example, Americans are leaders in innovation and
creativity. WTO rules allow us to reap the rewards of that
leadership. When India refused to provide patent protection for
American pharmaceutical and agricultural chemical products, we
took India to the WTO--and we won.
You often hear about how important the quote/unquote
``global box office'' is for Hollywood. It has become lucrative
because the WTO requires our trade partners to provide
copyright protection and market access for our American films.
Likewise, the WTO is very important for our farmers, who are
the most efficient and productive in the world. If you watch my
Cornwatch feed on Instagram, you will know that, thanks to
technology, corn grown today is shoulder-high by July 4th,
rather than knee-high like when I was a kid. And if you are not
watching Cornwatch, you ought to.
Unable to compete, though, some countries try to ban our
farm products by falsely claiming that they are dangerous. I
just spoke about this on the floor in my 1-minute speech after
opening the Senate. So in the WTO, for the first time we had
global rules that took on this form of protectionism by
requiring food safety measures to be based on science.
The WTO also ensures that our industrial companies have
access to key resources. When China tried to use its control of
rare earth metals and other minerals to pressure its neighbors,
the WTO is where we joined with the European Union and Japan to
take on China's bullying. Facing WTO retaliation, China lifted
its export restraints.
The WTO has also helped our broader foreign policy goals.
Opening economies means more open societies. One story that
needs more attention is how trade has led to more opportunities
for women. I am glad that WTO members recognized at the last
WTO ministerial to issue a document that was entitled
``Declaration on Trade and Women's Economic Empowerment.'' The
WTO needs to stay on top of that important issue.
These are important successes. But we cannot live in the
past. From 1947 to 1994, we had eight rounds of multilateral
trade negotiations. That is a major global trade deal every 6
years. The WTO is now 25 years old, but we have yet to see any
major outcomes liberalizing trade. The President has said that
we need dramatic change in the WTO. He emphasized to me that
other countries' tariffs and barriers are too high. The
President is right. No one expected the Uruguay Round to be the
last global trading round, like it has turned out to be.
Over the last 2 decades, countries like China and India got
a lot richer, but they have refused to take on any more
responsibilities. In fact, they both claim that they are
entitled to special treatment in any future negotiations
because they are developing countries. It does not even
embarrass China to say that. So the notion that China and India
should get the same consideration as a country like Cameroon is
of course ridiculous. So I applaud the President for taking on
this imbalance and pushing to make the WTO relevant.
Today I want to have a thoughtful discussion about getting
the WTO back on track. To me, that means a couple of things.
First, the WTO needs to be an effective forum for
negotiating agreements once again. That means not only
concluding the fisheries negotiations, but also new agreements,
including an ambitious agreement on commerce. When Congress
ratified the WTO agreements, there was nothing like what we
call the digital economy. Today it accounts for nearly $2
trillion of the U.S. economy. Again, this is an area of U.S.
leadership where we need rules to make sure we get a fair shake
from our trading partners.
Second, we have to fix dispute settlement. I absolutely
believe that we need enforceable rules. It is much better to
solve our trade disputes over legal briefs than through
tariffs. However, WTO dispute settlement has been breaking down
for a long period of time. Fifteen years ago, I warned at a
hearing like this that the WTO Appellate Body was not enforcing
rules; it was legislating new ones. I do not like that history
has proven me right after 15 years.
The WTO's Appellate Body ignored clearly written rules,
like finishing cases in 90 days. Cases that should have taken
months dragged on for years, of course frustrating our ability
to get timely relief. At the same time, the Appellate Body
started writing new rules that impinged on U.S. sovereignty,
and maybe on other countries' sovereignty. For example, the
Appellate Body has made it harder to use labeling to keep our
consumers informed about the country of origin of their meat,
or whether their tuna was harvested without hurting dolphins.
Of particular concern, the Appellate Body has also made it much
harder to use trade remedy measures at a time when we need them
more than ever to confront China's state capitalism.
I appreciate that what I am seeking is not going to be easy
to get done, particularly when you have to get agreement among
164 countries when you want a freer and fairer trading system.
But I do not appreciate embracing protectionism as the
alternative, because it can be extremely harmful in the long
run.
From 1929 to 1933, governments around the world raised
barriers to trade--including our own with the disastrous Smoot-
Hawley tariffs. Two-thirds of the world trade was wiped out,
and the Great Depression became much worse. World War II
followed.
We cannot repeat those mistakes. We are going to continue
to do what we have to and what we have been doing since winning
World War II, and that is simply, the United States will lead.
U.S. leadership will require Congress to step up and fulfill
our constitutional role in setting trade policy. Just as
Congress set the objectives for negotiating the WTO agreements
and approving those agreements, we are working now to secure an
ambitious reform agenda that will make this institution fit for
global challenges.
That is why I am glad members are considering and debating
solutions, and there may be more than one, but I want to point
out what Senators Portman and Cardin are doing. They have
introduced a resolution that has concrete proposals to reform
the WTO. It has never been more important than it is today to
ensure the World Trade Organization is equipped to take on the
global challenges we face today.
[The prepared statement of Chairman Grassley appears in the
appendix.]
The Chairman. Now, Senator Wyden, please.
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. And we
just looked up Cornwatch, and I was struck by the fact that,
not only are you out there standing in the field, but a lot of
that corn is taller than NBA players. I wanted you to know that
we were paying attention to your counsel with respect to
Cornwatch.
Mr. Chairman, I am glad you are holding this hearing. I
think it would be fair to say, if you walked into small towns
in virtually all of the States that we are proud to represent,
and you went to the local coffee shop, I do not think most
people would be following the World Trade Organization
discussion with any kind of specificity.
The fact is, however, that the World Trade Organization,
though little-known in those small towns, plays an enormous
role in our ability to secure the kind of high-skill, high-wage
jobs that we want for American workers, and it dramatically
affects costs of goods and services. So this is an important
issue, and it really comes down to the basic proposition of how
you get a better deal for American workers and for American
businesses.
Now as we get into this discussion, there really are two
different approaches. On the one hand, you have the Donald
Trump approach, which is to pull back from the World Trade
Organization, forfeit American economic power and stature to
the Chinese Government, and cover up this set of weaknesses
with a whole bunch of rhetoric about America-first and you do
that at home, and it is just empty, and it is to deflect from
the consequences of the damage done from walking away.
In my view, this is the same losing playbook the Trump
administration ran with respect to a proactive trade agenda in
Asia and the Pacific; the same thing they did with walking away
from the Paris Climate Agreement and the World Health
Organization.
It obviously will not do much of anything to protect
American workers against trade cheats if Donald Trump hands the
Chinese Government the levers of trade power. In fact, it would
be a big win for the trade cheats who rip off American jobs in
communities across the country.
Fortunately, there now is a smarter approach to World Trade
Organization reform based on addressing the areas where the
Chinese Government routinely games the trade system at our
expense. The rules that underpin the World Trade Organization
were crafted more than 2 decades ago. And that was a period
when China was essentially an economic middleweight. At that
time, many hoped and predicted that joining the World Trade
Organization would drive China further away from an abusive
one-party control of government, economics, and society. That
obviously is not happening.
Today, China is an economic heavyweight. Much of its growth
has come at our expense. That is because the Chinese Government
has broken rule after rule after rule and violated the
commitments it made 2 decades ago. It is also because 21st-
century World Trade Organization rules have totally failed to
keep up with 21st-century technology. And the fact is--and we
said it in the Finance Committee room some time ago--the fact
is the Internet is now the shipping lane of the 21st century.
As a result, there is now a long list of trade ripoffs that
have wiped out millions of American jobs: subsidized state-
owned enterprises; intellectual property theft; forced tech
transfers; the Great Internet Firewall; and government-led
shakedowns of foreign investors. China uses those schemes and
entities to strong-arm American businesses, steal our
innovations, and rip off our workers.
Under President Xi, the government tightened its grip on
power. The Chinese Government identifies weaknesses in the way
WTO operates, and other multilateral forums, and then it seizes
on them to promote their self-interest.
Fixing the WTO is also going to require addressing its
Appellate Body, which hampers the application of U.S. trade
enforcement laws to the detriment of our workers. There is a
broad bipartisan interest in the WTO dispute settlement
process, and that it needs to be fixed to clamp down on
judicial overreach. And I think that is an important area to
explore.
Just a couple of other quick points, and I will wrap up.
First, a long-running battle against unfair fishing
subsidies has the potential to bear fruit. Going back years
ago, my Pacific Northwest colleague and a member of the
committee, Senator Crapo, and I held a hearing on this issue.
That hearing was literally a decade ago. Senator Portman was
involved in getting those talks off the ground, going back to
the days when he served as the USTR.
The bottom line is that an agreement that curbs fishing
subsidies is going to protect jobs, fisheries, and promote
sustainable oceans. Accomplishing those priorities is vital.
Our oceans are key to making sure we stabilize the climate and
are feeding people around the world. And obviously our oceans--
and my State essentially borders the Pacific Ocean--those
oceans provide trillions of dollars in economic activity, if
nations around the world can protect them.
Second, WTO discussions around digital trade disciplines
are at an early stage, but they are also vital to economic
development and empowerment here and abroad. The United States
needs to work with our allies to set the rules of the road and
set the standard for the free flow of information and ideas.
I believe, Mr. Chairman, you are sitting in the Finance
Committee room. Nobody would have thought 2 decades ago about
the role of the digital economy in promoting high-skill, high-
wage jobs. And the fact is, a digital economy drives
everything. It drives agriculture. It drives health care. It
drives one industry after another. And setting the standards
for the free flow of information and ideas can be one essential
part of the World Trade Organization going forward.
There is no chance at all that the United States can get
better outcomes--better outcomes on the issues that you talked
about, Mr. Chairman, and the issues I have talked about--by
handing our power to the Chinese Government and just walking
away from the World Trade Organization. That is why Democrats
and Republicans need to continue to try to find bipartisan
common ground on these issues as an alternative to just pulling
back from the World Trade Organization. We are in a position to
lead on that debate.
This is an important hearing today. Thank you, Mr.
Chairman.
The Chairman. Thank you, Senator Wyden.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. I appreciate that very much.
So, on to the introduction of our guests, and I will ask
you to testify in the way I am introducing you. Since we have
some people virtually, I am not sure where to look.
So let us start with Ms. Jennifer Hillman, who serves as
senior fellow for trade and international political economy,
Council on Foreign Relations. Ms. Hillman has had a
distinguished career in law and politics and knows a lot about
the WTO, having served as a member of the WTO Appellate Body.
Also, as Commissioner at the International Trade Commission.
Also, at the U.S. Trade Representative as their Chief
Negotiator and General Counsel. And also, at one time a
legislative director here in the U.S. Senate. She also
practices teaching of law--I should not say ``practices''--at
the Georgetown University Law Center.
Thomas Graham has been chair of the WTO's Appellate Body;
also, a partner at the law firm of Cassidy Levy Kent. He was
one of the first lawyers to represent the U.S. respondents in
global trade remedy cases. And at King and Spalding, he chaired
the international trade practice. He served as Deputy General
Counsel at USTR. He has taught also at Georgetown University.
Ms. Laura Lane is chief corporate affairs and communication
officer at UPS. Ms. Lane had a notable career in public
service, again another person at USTR, negotiating market
access commitments on trade and services with China as part of
its accession to the WTO, and was U.S. negotiator for World
Trade Organization financial services negotiations. She has
also served many years in the U.S. Foreign Service.
Dr. Glauber serves as senior research fellow, International
Food Policy Research Institute. Dr. Glauber is an expert on
crop insurance, disaster policy, and U.S. farm policy. He spent
over 30 years at the USDA, including as Chief Economist. During
that time, Dr. Glauber was Special Agricultural Envoy for USTR,
where he served as Chief Agriculture Negotiator at those talks.
Additionally, he served as an economic advisor on export and
domestic subsidy reduction commitments as part of the Uruguay
Round.
Finally, we welcome Michele Kuruc, vice president of ocean
policy at the World Wildlife Fund. Ms. Kuruc worked with the
United Nations Food and Agricultural Organization, there
specializing in enforcement technology and operations; also,
advising on dealing with illegal fishing globally. She has also
served as a lawyer at the National Oceanic and Atmospheric
Administration.
We look forward to hearing from all of you today. So we
start, then, with Ms. Hillman.
STATEMENT OF JENNIFER A. HILLMAN, SENIOR FELLOW FOR TRADE AND
INTERNATIONAL POLITICAL ECONOMY, COUNCIL ON FOREIGN RELATIONS;
AND PROFESSOR, GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, DC
Ms. Hillman. Thank you. I want to commend you, Mr.
Chairman, Ranking Member Wyden, and this committee for focusing
this hearing on the World Trade Organization, because now is
the time when we need the WTO more than ever, with
international trade itself and a number of trade-related
issues. Whether it is trade-
related aspects of global health or climate change or labor,
these issues cannot be addressed with a go-it-alone approach.
They require multilateral rules and a multilateral system to
enforce those rules.
Unfortunately, the WTO is in deep trouble, unable to reach
new agreements on critical issues such as fisheries, subsidies,
or e-
commerce and--due to the decision of the United States to block
appointments to its Appellate Body--without a binding dispute
settlement system to enforce its rules.
While reforms need to happen across all aspects of the WTO,
as I have discussed in my written testimony, I want to focus my
brief remarks this morning on the dispute settlement system.
Ever since May 2017, when the United States began blocking the
appointment of new members to the Appellate Body, our trading
partners have been asking the question, is the U.S. goal to
reform the Appellate Body or is it to destroy it? With the
testimony to the Ways and Means Committee last month,
Ambassador Lighthizer gave the answer. For the Trump
administration, the goal is to kill the Appellate Body.
Ambassador Lighthizer stated, and I quote, ``I don't feel any
compulsion to have the Appellate Body ever come back into
effect,'' end quote.
For my part, I do not believe that decision is in the
United States' interest or that it is consistent with the clear
expressions of support for a reformed Appellate Body from
members of Congress. U.S. concerns with the Appellate Body have
been raised for many years but often ignored in Geneva. As
such, the U.S. action to block all appointments got everyone's
attention and resulted in an entire process, both in Geneva and
elsewhere, to develop reforms--while giving the United States
significant leverage to shape a revised WTO.
But just when the rest of the world was prepared to move,
the United States effectively shut itself off from the reform
process. American refusal to suggest any way to fix the system,
or even what fixes recommended by others would be acceptable,
makes it less likely that the U.S. proposals in other areas
will receive the attention that they deserve, given the lack of
trust in American leadership at the WTO. This includes the U.S.
plan to create specific criteria for what it takes to be
considered a ``developing country,'' as well as its well-
supported proposal to put teeth into the reporting requirements
for notifications and subsidies.
In addition, American failure to engage in the debate on
reform of the Appellate Body cedes American leadership to
others. Already, the rest of the world is moving ahead without
the United States in the area of dispute settlement. Twenty-two
countries, led by the European Union and joined by China,
Canada, Mexico, and others, have agreed to an arbitration
process for conducting appeals. It is quite likely that from
this Multi-Party Interim Appeal Arbitration Arrangement, or
MPIA, will emerge new approaches to handling appeals, and the
United States will not have been a part of that process and
will have no ability to shape its direction.
A loss of perceived leadership could also be damaging to
U.S. efforts to reach a new agreement on everything from e-
commerce to new disciplines on fisheries subsidies, and perhaps
most importantly, to address the disruption caused by China's
increasingly Communist Party-dominated nonmarket economy.
Fixing the Appellate Body is achievable. And in my written
testimony, I have suggested a number of specific ways to do so.
It is in the United States' interest to lead that process,
because a strong mechanism for enforcing the rules makes it
much more likely that countries will agree to new commitments,
including commitments to reform other aspects of the WTO if
they believe there is a system that will hold all countries to
those commitments.
It will also be important because other countries will take
their existing obligations more seriously if there is a serious
mechanism for enforcing them. Fixing the Appellate Body will
also give the United States, and like-minded members of the
WTO, more leverage over China, given the need for a
multilateral approach if we are to have success in achieving
structural and systemic changes in China. And it may well help
improve the prospects for addressing the growing rift with the
European Union over digital trade-
related issues such as data privacy, digital services taxes,
and antitrust disciplines on large high-tech companies.
I urge this committee to keep working for a reformed WTO
that can take on the 21st-century trade problems we are all
facing. Thank you.
[The prepared statement of Ms. Hillman appears in the
appendix.]
The Chairman. Thank you very much. And now we go to Mr.
Graham.
STATEMENT OF THOMAS R. GRAHAM, PARTNER,
CASSIDY LEVY KENT, WASHINGTON, DC
Mr. Graham. Thank you, Chairman Grassley, Ranking Member
Wyden, members of the committee. Thank you for this opportunity
to testify on WTO reform, which I believe has to be done and
has to be done well if the WTO is to continue being relevant
for international trade.
I will ad lib for a moment in response to what Jennifer
said. I agree certainly that there must be reform, and that the
United States must be a leader in that reform. However, I
believe that for 15 years, increasingly the USTR and the United
States have been telling the rest of the world and WTO members
what they thought was wrong with WTO dispute settlement,
including in a 110-page paper last January that summarized the
statements over the years.
And still, during my tenure and my observation on the
Appellate Body, the European Union and others continued simply
to say, ``Tell us what you want. Tell us what you want.'' In my
view, that was a failure to recognize the depth of the U.S.
critique of the Appellate Body--which we can talk more about--
of dispute settlement in particular, and to be saying in
effect, ``Come on, put a few chips on the table so that we can
get going on negotiations.''
So that is where I differ as to the blame that might be
placed on the United States. I also differ on this: my
interpretation of the U.S. position in the last 3 to 4 years
has been that they prefer Appellate Body reform, but deep and
serious reform, and they are willing to bring the Appellate
Body to a halt unless the reform is engaged with. And I place a
considerable amount of blame on the European Union in
particular, and others, for not recognizing the sincerity and
depth of the U.S. critique--which has been consistent over
three administrations, Republican and Democratic, for the last
15 to 20 years--and for not acknowledging or indicating its
willingness to come to grips with it, and instead preferring,
seemingly, easy or low-hanging fruit over procedural matters.
And with that, I will wind up my ad lib in response and
carry on with a few prepared remarks. In a nutshell, my views
are that the WTO Appellate Body has strayed from the rules that
U.S. negotiators helped to write, and that the Congress
reviewed and approved, some 25 years ago. For 20 years spanning
three administrations--Republican and Democratic
administrations--the United States has consistently called out
the Appellate Body for exceeding its role and has sought
corrections.
Many WTO members, including the European Union, have been
slow to acknowledge the depth and bipartisanship of the U.S.
critique, or to engage with it. Reforms of WTO dispute
settlement and reforms in updating the WTO rules should be done
together. There should be no rush to restart the Appellate
Body, and certainly not to do so as a ``price'' for the U.S.
having blocked appointments in recent years. That would be to
give away our leverage and to acknowledge or indicate fault
when fault also lies with those who have not indicated a
willingness to engage with the depth of the U.S. critique.
Dispute settlement also affects the rest of the WTO in the
sense that if the Appellate Body or the dispute settlement
system over-reaches, it discourages, or provides a disincentive
for countries to negotiate, because some believe they can get
through litigation what they could not get through
negotiations. And it also forces the negotiating governments to
believe that they have to cross every ``t'' and dot every ``i''
or their words are at risk of being distorted by the Appellate
Body and the dispute settlement system.
Over the years, as was indicated both by Chairman Grassley
and Ranking Member Wyden, a large part of the U.S. critique has
focused on Appellate Body decisions that weakened U.S. trade
remedy laws, laws that address dumped or subsidized imports, or
sudden increases of imports that injure U.S. manufacturers.
A lot of these cases have involved imports from China,
whether the Chinese prices are market prices, whether state-
owned enterprises or other Chinese companies with significant
government involvement are conduits for Chinese government
subsidies. China is the elephant in the room for WTO reform. It
is a difficult fit in a WTO system of rules that was based on
market competition. I do not readily see how the dispute
settlement system can be reformed and the Appellate Body
restarted until a core of WTO members comes to grips with how
China fits within the system. And that is a question larger
than the Appellate Body and dispute settlement.
So I would encourage the United States to take a long view.
Above all, I encourage U.S. negotiators--and this committee in
its oversight--to resist requests for quick, first-stage
agreements that would restart the Appellate Body before there
has been a serious engagement on reform of the institution as a
whole. I think that would be counterproductive for the goal of
significant reform and updating, both by papering over
differences, making it likely that the same problems would
recur, and by giving away a big chunk of U.S. leverage.
I do not agree with the arguments that the rest of the
world is moving on without the United States and we will lose
out. There is not going to be a WTO without the United States.
They need us. And we have made our point now. It appears that
others are more open to basic reform, and I think that we
should proceed with all due speed, but together with reform of
dispute settlement and reform of the institution and the rules,
particularly with regard to China.
I look forward to your questions.
[The prepared statement of Mr. Graham appears in the
appendix.]
The Chairman. Okay; Ms. Lane?
STATEMENT OF LAURA J. LANE, CHIEF CORPORATE AFFAIRS AND
COMMUNICATIONS OFFICER, UPS, WASHINGTON, DC
Ms. Lane. Chairman Grassley, Ranking Member Wyden, and
members of the committee, thank you for having me here today.
My name is Laura Lane, and I am the chief corporate affairs and
communications officer for UPS, a global leader in logistics.
And I am truly honored to testify on the need for WTO reform.
The subject of today's hearing is of great importance to
UPS. We are proudly headquartered in Atlanta, GA. We serve more
than 220 countries and territories in the world. We employ
almost half a million people, and every day UPS moves 6 percent
of U.S. GDP and 3 percent of global GDP.
To begin, let me tell you why the WTO is so important for
the American business community. The people we employ depend on
the 99 percent of the global trade that takes place in
countries that are WTO members. With 96 percent of the world's
consumers outside the U.S., American exporters and UPS
customers have benefited from a single set of rules as they
have entered new markets. That predictability and certainty
becomes even more important during a crisis.
As an essential service provider, we at UPS saw how
important it was for countries to be able to quickly adapt best
practices, from e-signatures on Customs documents to expedited
border crossings for our heroic cargo pilots. Time is critical
in our business, and never more so than during a pandemic,
where the ability to move across borders quickly saved time.
And more importantly, it saved lives.
Chairman Grassley, I could not agree with you more that we
need the U.S. to lead in reforming the WTO. Because the fact of
the matter is, the world has changed since 1995. We need the e-
commerce negotiations done and, most importantly, we need trade
rules to become more just, inclusive, and fair. On the justice
point, Jennifer Hillman is the expert. I would only add that we
need disputes resolved more quickly. No one wants to wait for
needed critical PPE to be delivered, and so too businesses do
not want to wait for justice in the WTO.
And the WTO needs to be a little more like UPS and deliver
more in a timely manner. In the 25 years since the creation of
the WTO, the members have only concluded one new agreement--the
Plurilateral Trade Facilitation Agreement. Now that was a
really important agreement for UPS because it eliminated
inefficient border processes to the benefit of our customers.
But what about e-commerce? That has provided a lifeline to
customers and businesses alike during this pandemic. The WTO
needs to reach a deal to foster and not frustrate digitally
enabled trade.
On the point of inclusion, the WTO has done some really
great work addressing women in trade, and small businesses, but
so much more needs to be done now, especially if we are going
to help with economic recovery.
No one knows better than this committee working on the
stimulus package--and on multiemployer pension reform--that
women and small businesses have been the hardest hit by COVID-
19. The fact of the matter is that small businesses, and
particularly women, have just not benefited as much from trade
as they should. Under U.S. leadership, why not incorporate the
language from the USMCA into the WTO to create real platforms
to actively support small businesses, and to say that
discrimination on the basis of gender or any community is just
not allowed?
Finally, on the need for fairness, the coronavirus has made
the intervention of governments in markets necessary, but the
WTO needs to address the issues of industrial subsidies and
market intervention by state-owned and state-sponsored
enterprises. We need a modern definition of ``developed''
versus ``developing'' country status, as so many countries that
were developing in the 1990s have clearly graduated to more
developed country status. And how about the all-important issue
of environment? That needs to be addressed in the WTO in a way
that is fair for business and communities.
Finally, we need a Director General who can get
negotiations going again and drive reforms that deliver
justice, inclusion, and fairness. Tackling all these issues as
we recover from COVID-19 will define the next generation of
American trade and global development, which is why we need to
invest in reform now.
As an essential service provider, UPS has a vital role in
advocating for the needed reforms. And as united problem
solvers, we are prepared to deliver policy solutions to
accomplish that goal. Thank you for your time today.
[The prepared statement of Ms. Lane appears in the
appendix.]
The Chairman. Thank you. Dr. Glauber?
STATEMENT OF JOSEPH W. GLAUBER, Ph.D., SENIOR RESEARCH FELLOW,
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, WASHINGTON, DC
Dr. Glauber. Chairman Grassley, Ranking Member Wyden, and
distinguished members of the committee, thank you for the
opportunity to testify before this committee on the current
state of agricultural trade and the World Trade Organization. I
have submitted a longer statement for the record, but this
morning I would like to summarize a few of the points I make in
my written statement.
First, U.S. agriculture has benefited greatly from the
rules-based trading system established under the WTO. Many of
you remember, like I do, the state of agricultural trade during
the 1980s. Many markets were protected through high tariffs,
limited quotas, or outright bans on imports. Variable levies
were in place in many countries, which allowed countries to
adjust tariff levels to protect domestic markets as world
prices fell or rose. Domestic support to agriculture,
particularly among the rich developed members, was large and
growing. Producers in those countries made production decisions
largely insulated from the world market. Governments propped up
domestic prices by storing production in large public
stockpiles and dumping surplus on export markets using export
subsidies.
The Uruguay Round agreement on agriculture brought
substantial discipline to the areas of market access, domestic
support, and export competition--and global agricultural trade
has more than tripled in value and doubled in volume since
1995. U.S. ag exports have risen to record levels over the
period, largely without the aid of export subsidies or
concessional sales, a far cry from the 1980s when, if you
looked at a commodity like wheat, most of that went out under
export subsidies or export credits or food aid, or a
combination of those.
Exports account for a larger share of U.S. agricultural
production in large part because most population and demand
growth is occurring outside of this country. These trends are
forecast to continue in the future, but it is essential that a
functioning, rules-based trading system is in place. I would
say trade is essential for improving global food security
because, as trade levels have grown, so too has the importance
of trade in meeting domestic food needs. As population and
incomes grow, food demand will increase in areas where
productivity gains are not enough to meet the domestic food
needs.
Imports as a percent of consumption have been growing over
the past 20 years and are expected to continue to grow in the
future. That means a more open trading system will be necessary
if we are to meet food security goals. The last 2 years have
shown how disruptive trade wars can be. Unilateral trade
actions, followed by counter-retaliations, have hurt exports
and disrupted global supply chains that have been built over
the last 20 years. The short-term costs have been large, with
billions of dollars of lost producer revenue in the U.S. alone;
but the long-run costs could be more costly if importers no
longer trust you as a reliable trading partner. We have already
seen increased soybean plantings in South America over the past
2 years, with record exports of soybeans coming out of Brazil
this year.
Turning to the Appellate Body reform at the WTO, I think
you have two excellent panelists here who can speak far more
knowledgeably than I, but I would just say that the system
itself has worked very well for U.S. agriculture.
Over the period 1995 to 2019, the U.S. took some 43 cases
against WTO members involving agricultural products. Of those,
17 of those cases went to a panel. The others were resolved as
part of the dispute settlement process and before they went to
a panel. But of the 17 that went to panels, panelists agreed
with 80 percent of the claims that we made. If you are looking
at those cases involving the agreement on agriculture, it was
more like 85 percent of the claims that the U.S. made against
other members.
Ironically, in the midst of the trade war with China, the
WTO ruled in our favor on two cases first brought to the WTO in
late 2016, one on domestic support for grain producers in
China, and the other on China's administration of its TRQ for
rice, wheat, and corn. I believe this demonstrates the efficacy
of the dispute settlement mechanism and its importance to the
rules-based trading system.
Does the WTO need reform? Absolutely. It is now 25 years
since its creation, and the world is a different place.
Developing countries now account for a far greater share of
world agricultural imports and exports. South-south trade alone
accounts for almost one-
quarter of total agricultural trade. And while significant
progress has been made in eliminating export subsidies and
promoting trade facilitation, market access and trade-
distorting domestic support have seen little reform since the
Uruguay Round.
We have issues with the Appellate Body process that were
articulated just earlier, and whether in particular the
Appellate Body is overreaching in its decisions. These are all
important issues that need to be addressed, but it would be a
huge mistake to walk away from a system of rules that has
offered so much. The U.S. has been a leader in helping create
the global trading system that we know today, and we cannot
shirk that responsibility in the future. We need to work with
other like-minded members in helping to reform the WTO to meet
the needs of the 21st century.
Lastly, the challenges of meeting future food needs will
require a concerted effort from governments to improve the
functioning of food and agricultural markets. And the WTO can
play an enormous role by reducing trade-distorting support,
improving market access, ending distortions caused by export
restrictions and subsidies, and perhaps most importantly,
continuing to provide a forum to which members can bring and
hopefully resolve trade disputes.
Thanks very much, and I look forward to the questions.
[The prepared statement of Dr. Glauber appears in the
appendix.]
The Chairman. Now, Ms. Kuruc.
STATEMENT OF MICHELE KURUC, VICE PRESIDENT,
OCEAN POLICY, WORLD WILDLIFE FUND, WASHINGTON, DC
Ms. Kuruc. Yes. Thank you very much, Senator Grassley,
Senator Wyden, and other members of the committee. My name is
Michele Kuruc, and I work for the World Wildlife Fund. Thank
you for having me here this morning.
The details of what has transpired during 20 years of
negotiations at the WTO on harmful fisheries subsidies is
hardly a riveting story, but the inability to successfully
conclude those negotiations and reach an agreement has been
extremely frustrating. We have had to witness the concurrent
decline in the health of the world's oceans, fueled in large
part by harmful subsidies funding too many boats chasing too
few fish. Our oceans are rife with illegal fishing, over-
fishing, and over-capacity. And each of those has its own story
of failure.
With illegal fishing, losses are valued at up to $36.4
billion every year. With over-fishing, more than 80 percent of
the world's fish stocks are already over-fished or at the
maximum level for harvest. And with over-capacity, over 3
million fishing vessels are estimated to fish in marine waters,
and there are just not enough fish for all of them. Each of
those damaging activities is furthered by subsidies. And after
20 years, an agreement is overdue that puts an end to subsidies
that perpetuate the attractive value proposition for these
detrimental activities. And only the WTO can deliver that
agreement.
On a global level, the subsidies to fisheries are estimated
at $35.4 billion annually. The top five subsidizing entities
are China, the European Union, the United States, the Republic
of Korea, and Japan. And while not all subsidies are considered
harmful, about two-thirds are, with subsidies supplying fuel,
gear, bait, tax breaks, and capacity enhancement for more and
larger vessels contributing to declines in the entire sector's
productivity and worsening the unsustainable downward spiral.
As an example, local fishers off the coast of Africa and in
the South Pacific must compete with much larger, subsidized
foreign vessels, many fishing illegally. Inappropriate
subsidies not only harm the environment, they directly promote
unfair trade, and even contribute to geopolitical strategies on
economic control.
China has the world's largest distant water fishing fleet,
a fleet that not only fishes in multiple oceans but is used to
project Chinese maritime power. That fleet is also supported by
subsidies, allowing these Chinese boats to roam the world's
oceans and prey on weaker nations--and thwart many laws
designed to keep fish stocks at sustainable levels. China is
first in giving capacity-
enhancing harmful subsidies, supplying about one-quarter of
that total.
Subsidies often claim to be essential to help small-scale
fishers, those in poverty, or to only impact fishing within one
country's waters. But none of that really withstands scrutiny.
Large-scale fishing operations receive 84 percent of subsidies
globally, while small-scale operators receive only 16 percent.
Subsidies also support illegal fishing activities and are
believed to provide between $1.8 and $3.7 billion annually to
facilitating unlawful behavior on our oceans.
Harmful subsidies also undermine fisheries management.
Funds that are harmful subsidies ought to be redirected to
improving fisheries management, which is a far better
investment. The World Bank estimates that effective management
of global marine fisheries and subsequent recovery would yield
at least $83 billion in additional revenues each year. In the
United States, our own fisheries management is strong, but in
many other countries, that is not the case. Continued poor
fisheries management, coupled with subsidized over-fishing, is
not only putting law-abiding fishers, including our own, at a
commercial disadvantage, but it is also a recipe for large-
scale economic and biological disasters and compromised food
security.
The United States has established a high-ambition outcome
in these negotiations and has held to that while discussing the
proposals of others. We have excellent negotiators, and they
should stay the course and determine when and if compromises
are needed. But this issue is also about the strength and value
of the WTO as an institution.
Many who have been long-time WTO watchers in this space say
they feel there is reason to be optimistic on successfully
concluding the negotiations this time, as it is the closest
they have come in over a decade. But we also need to address
unfair trade practices, and this means import control rules
that identify and prevent illegal fish products from entering
our lucrative U.S. market. The U.S. Seafood Import Monitoring
Program, known as SIMP, is a useful start, but it currently
only covers 40 percent of our fisheries imports. Other major
fishery importing countries are considering following the U.S.
lead, and collectively we can shut off the illegal fish tap if
we do it right and expand it to include all species.
Notwithstanding the SIMP import screening, approximately $1
billion in illegal fish products are still entering the United
States. It is important for the U.S. to work to address unfair
trade practices, both subsidies and illegal fishing, that harm
the environment, fisheries, U.S. fishermen, and our seafood
industry.
Thank you very much, and that concludes my remarks.
[The prepared statement of Ms. Kuruc appears in the
appendix.]
The Chairman. Thank you very much. And before I start
questioning, since so many of our members are remote, if you
are not going to ask questions, please notify me so I do not
wait around to call names that do not need to be called.
And secondly, since people are remote and you might not
know when your 5 minutes are up, I might interrupt at 5\1/2\
minutes and say, ``Wind up.'' Do not consider it being rude,
but I want to keep people from going on for 3 or 4 minutes
after their 5 minutes are up like we had yesterday. The other
thing is to kind of be careful about the 5-minute rule because
we have votes, and I want to keep this meeting going while
those votes are going on. So I hope that we will have other
members willing to chair while I go vote.
I am going to start with Dr. Glauber. You have done an
impressive job in your research, demonstrating that global
trade in agriculture has become a mess when these cases are
before the WTO. We had high tariffs, export subsidies, and all
types of protectionist barriers. I hope we are in a better
situation now, but it obviously is not perfect.
The last couple of years have been particularly hard for
farmers, because of trade wars and several other challenges.
What can we do, both in the short term and long term, at the
WTO to improve global market access for our farmers? That is my
first and maybe only question to you.
Dr. Glauber. Thanks very much. One, I think it is very
important to get this Appellate Body crisis resolved. I think
that short of the negotiations, where I think we have been
fairly successful in opening markets, is when we see a country
not implementing their trade regime the way the rules state. We
have been able to take cases and argue them successfully.
I think the China cases are a good case in point, both on
domestic support. We argued that they were over their domestic
support limits, and the panel agreed with us. China is in the
process of complying, although I note today I think the U.S. is
raising this issue again with the dispute settlement body.
The other one is in TRQ administration. China just was not
filling the TRQs that they said they were going to open for us
when they acceded to the WTO, not just to us but to other
countries. So I think that is very, very important. We have
seen progress there. We won that case. If you are looking at
TRQs for wheat and corn this year, they are well on the way to
being filled. Rice still lags, and so I think that is going to
be something that will have to be closely followed.
But I think those things are the immediate issues to get
the Appellate Body resolved, because the last thing we need is
to get either in a panel or a compliance panel or something
where a country decides to appeal that ruling and then we are
stuck.
And then lastly, I think we do need to get back to the
negotiating table. I think this has been the gist of a lot of
the comments that others have made here. I think as a
negotiator, it was very frustrating to see the Doha Round sort
of collapse the way it did. I think there were a lot of things
in there that were really important to push forward: gains in
market access, gains in domestic support.
I think, frankly, the Director General has done a good job
of trying to gather what low-hanging fruit was left out of that
agreement. So things like trade facilitation--which others have
mentioned--is very, very important. It was very important to
get export subsidies eliminated. But there are still a lot of
distortions in the world, and I think we need to move forward.
The Chairman. I am going to cut you off because I have time
for just maybe one more question. But thank you very much for
what you have done to answer my question.
I go to Ms. Hillman. The blocking of the Appellate Body's
positions started under the Obama administration, and maybe in
my memory even goes back to some things that were done in the
Bush administration. So it has continued of course under the
Trump administration. So there is a bipartisan agreement, it
seems to me, that the Appellate Body is not working properly.
It is unfortunate that we have to do this, but I think it
was the only way to get countries to focus on the issue. We
have been raising it for several years without success. I am
concerned that we will lose leverage at some point in getting
dispute reform if we do not find a path forward. In particular,
it seems a fair number of countries have signed up for the
alternative to the Appellate Body, the Multi-Party Interim
Appeal Arbitration Arrangement, I guess it is called. At some
point, I am worried that it may become less ``interim'' because
countries will stick to this alternative rather than reform.
Do you think that that is the case? And is there anything
in the multi-party arrangement that you think we ought to
consider beneficial or concerning?
Ms. Hillman. Well, thank you, Mr. Chairman.
I think that the Multi-Party Interim Arrangement--those in
it are emphasizing the word ``interim.'' In other words, their
view is that this is only being done until the formal Appellate
Body can be restored. But I do not think you are wrong in
suggesting that if this continues to drag on and on, it will
become the only alternative.
The good that may come out of it is that I think those that
are involved in it have heard very clearly the United States'
complaints. And so I think their hope is that they can develop
a system that addresses the U.S. concerns. In other words, the
MPIA process will get appeals done in 90 days, will not create
precedent, will again do a lot of the things that the United
States has been complaining about; will not overreach, will not
try to write rules that are not there. So I think those that
are involved in it intend for it to be a model of how you can
do an appeals process that is consistent with the rules as
written, and that is also addressing, to some degree, the
United States' concerns.
That is the hope: that it could show the way, if you will,
that this can be done. We will have to see how it works out,
but implicit in your question, I think, is the problem for the
United States, which is that we are not a party to it. And at
this point, it does not look like we will be a party to it. So
it is ceding the leadership for the reorganization of the
dispute settlement system to others that will not include us.
And to me that is a real worry, that the process will not
involve U.S. leadership and U.S. input.
The Chairman. I am going to have to submit the rest of my
questions for answer in writing because, with these votes
coming up, we will not have time to have a second round. My
next question was going to be to Ms. Lane, but you will have to
receive it in writing.
[The questions appear in the appendix.]
The Chairman. Senator Wyden, I am going to step out for a
few minutes. Do you have any UC requests that you want me to
consider before you start asking your questions?
Senator Wyden. I do not, Mr. Chairman.
The Chairman. Okay; and then after his 5 minutes are up, it
is Senator Carper, just in case I do not return. But I am only
going to be gone a short period of time. Go ahead, Senator
Wyden.
Senator Wyden. Thank you very much, Mr. Chairman.
Let me start with you, Ms. Hillman. And thank you for your
years of good work on the very complicated issues surrounding
the World Trade Organization, particularly the Appellate Body.
Let me tell you what I am most worried about with respect
to the Trump approach, and be very specific about it. It seems
to me the Trump approach would put us in the position of our
losing rules we have, without getting the rules we need. And
that is really a double-whammy against the cause of promoting
America's role in a global economy. And let me be specific.
What we have now with the rules is access to foreign markets
for our farmers and ranchers, our service providers, and for
manufacturers. What we need are rules to curb government
subsidies that undermine our farmers and fishers, rules to
ensure the free flow of information and ideas, and better
overseas market access for American manufacturers.
Tell me your reaction to that. And it just seems to me what
you really laid out is the risk that what we fought for and
obtained could be lost, and we would not get what we need for
the future under this Trump approach. What would be your
assessment of that?
Ms. Hillman. I think that is entirely correct, because the
concern is that, in the absence of having an Appellate Body, if
we are trying to enforce the rules that we have, all a country
needs to do if the United States brings a case--and again, we
have discussed many of the cases--and wins that case and the
other party that loses does not want to comply, in the world
that we are in right now, all they need to do is file a notice
of appeal and say, ``I am appealing that decision.'' And under
the rules of the WTO, no one can then do anything while an
appeal is pending. You are not allowed to then seek
enforcement, or to take other actions while the appeal is
pending. And in the absence of having enough Appellate Body
members to form a quorum, that appeal could be pending forever.
Which means no one actually then formally has to comply.
So then the only way you can think about getting compliance
is to start down the road of retaliating, putting on tariffs.
And we get back into this tit-for-tat, I put tariffs on you,
you then say I should not have put those tariffs on, you put
tariffs on me, and we start making every single dispute at the
WTO become its own little mini-trade war in which all we are
doing is imposing tariffs on one another and not solving the
underlying problems.
The other part of what is implicit in your question is, we
need American leadership to get those new rules that you are
talking about. And right now, the perception is that the United
States has to some significant degree walked away from the WTO
and from leading the effort for reform, because it has
effectively walked away from the reform of the Appellate Body
and the dispute settlement system. It is not getting the
attention and the traction and the support that it needs on
some of its other proposals.
Yes, the United States has been very engaged in the e-
commerce negotiations, but again the question is whether there
is trust in that American leadership. And to the extent that we
are walking away from our negotiations in other places, it is
handing a lot of that leadership to others in the WTO. And
that, I think, is damaging to the United States.
Senator Wyden. Thank you, very much. And I want to hold the
record open for you, Ms. Hillman, if you would like to amplify
on this. Because to me, this seems bizarre even by the
policymaking standards of Washington, DC, that you give up
rules you have, not get what you need, and I think you laid it
out. And if you would like to amplify it for the record, that
would be very helpful. And I appreciate your leadership.
I have one more minute, and I want to use it on this
question of fisheries subsidies to Ms. Kuruc.
Ms. Kuruc, as you know, this has been the longest-running
battle since the Trojan War. Senator Crapo, a thoughtful member
of the committee, and I have been looking at this issue for
years. Jobs in the seafood industry and a healthy climate in
the Pacific Northwest depend on healthy oceans.
Can you elaborate on how the specific obligations proposed
by the United States not only improve the health of our shared
oceans, but also support the fishers and our seafood industry?
Ms. Kuruc. Yes. Thank you very much for the question. I
think that some of the primary positions that the United States
has taken want to hold all countries to a higher standard,
minimize the special and differentiated treatment for IUU
fishing, for over-
fishing, for over-capacity, trying to make sure that there are
not special sort of proxy rules that eliminate the territorial
sea--in other words, the distance between the coast and 12
miles--that somehow say some of these subsidy rules should
apply in that area.
There are a number of countries that are proposing all
sorts of different exceptions--things like ``the green box''
that make it seem like there should be special situations that
are exempt from these sorts of subsidy prohibitions. And I
think that the U.S. recognizes that without all countries
following the rules, the loopholes are just too great, and that
they need to be held to a higher standard. But we know that in
international negotiations, compromise is the name of the game.
Consensus is how it works.
And I think that smart and influential U.S. leadership, as
has been shown in many other forums, regarding this issue would
be the way that we bring others along. And this is another
example, as others have been talking about, why U.S.
leadership, that other countries have come to really depend on,
is so critical in this situation as well.
Thank you.
The Chairman. Senator Carper?
Senator Carper. Thanks. Again, to each of our witnesses,
welcome. To the two ladies who are here in person, thank you
for coming. And for those who are joining us remotely, we thank
you as well. This is an important subject. And, Mr. Chairman, I
am delighted that we are holding this hearing, and I am
appreciative of the input. One of the things my colleagues hear
me say from time to time, probably too often, is, ``if it is
not perfect, make it better.''
And there has been a lot of conversation today and before
about the flaws in the current WTO system. And like this
administration, and like past administrations, I believe the
WTO must be reformed to better tackle today's global trade
challenges. This includes reforms to address non-market
economies like China. At the same time, I have long believed
that a global rules-based trading system is important to
provide certainty and predictability for American farmers, for
businesses, and for workers, all of whom rely on keeping
overseas markets open for American goods and services.
One of the things I used to do, when life was more normal,
is customer calls to businesses in Delaware, all over my State
and, in fact, around the country. I always asked three
questions. How are you doing? How are we doing--we in the
Federal Government--and when I was Governor of Delaware, how
are we doing in Delaware? And, what can we do to help you?
And when I ask them, ``What can we do to help you?'' they
say, almost without exception, ``Provide us with grealter
certainty and predictability''--almost everybody says that.
The U.S. led efforts to create a system that allowed for
greater certainty and predictability after World War II. And we
have ceded that leadership of the WTO now, and I think it is a
mistake. It only benefits one country, and that is China, the
other giant in the room.
I would just ask if each of you could take just a couple of
minutes to share your thoughts on how the U.S. has benefited
from being a leader in multilateral institutions like the WTO.
And if we could, I am going to ask Thomas--I like that name,
Thomas--Thomas Graham, Thomas R. Graham. My middle initial is
``R.'' So, Mr. Graham, why don't you go ahead and lead us off,
please? Thank you.
Mr. Graham. The U.S. has been a leader, obviously, over 60
years or more in creating the GATT and building the WTO, in
setting up, actually, the Appellate Body and putting the rules
together. Since then, and recently--it is not my place or my
role or wish to carry water for the Trump administration.
However, on this point, we would not be having these talks--we
might here--but the world would not be having talks about
reforming the WTO, and reforming the dispute settlement system,
had the United States not taken a very firm stand as it did
recently, because the U.S. had been offering the same critique
for many years. And many, the EU included, were pretty happy
with the way things were, and were willing to talk about
tinkering, but not basic reform.
So that is why we are talking about basic reform----
Senator Carper. Mr. Graham, I am going to ask you to hold
it right there so some of our other witnesses have a chance to
respond.
Mr. Graham. Okay.
Senator Carper. Thank you for that response. Ms. Hillman,
please.
Ms. Hillman. I would say the key benefit that all Americans
get from the WTO is a fundamental principle that you cannot be
discriminated against. In other words, the core basis of the
WTO rules is that countries cannot discriminate on the basis of
nationality.
So no country can say, ``Well, I prefer goods from Europe,
and therefore I am going to put a higher tax on goods from
America.'' I mean, we benefit from that basic rule that you
cannot be discriminated against--and that foreign goods cannot
be discriminated against over domestic production. And it is
the predictability and the certainty that your goods will
trade, that you can count on your trading partners when you
need them, that their goods will be able to move into your
market without discrimination, as an absolute core bedrock
principle of the WTO. I think we need more than ever to remind
everyone that goods will move, that you can count on it, and
that you will not be discriminated against.
Senator Carper. Okay, hold it right there. That was
excellent. That was an excellent, excellent response. Thank
you.
Let me turn to Ms. Lane, please.
Ms. Lane. I just want to echo what Jennifer Hillman said
but focus on one area that is specifically important for UPS,
and that is the trade facilitation aspects of the WTO; that
agreement that was struck that makes it easier to cross
borders.
We have so many small and medium-sized businesses that are
challenged with some of the complexities of getting their goods
across boarders. The Trade Facilitation Agreement, which was
launched within the WTO, is so important for making it easier
to do trade. When trade is simple and easier to do, more trade
happens. Who benefits? The small and medium-sized businesses,
which are the heart of the American economy. Thank you.
Senator Carper. All right; thank you. Dr. Glauber, how has
the U.S. benefited from being a leader in institutions like the
WTO? That is my question.
Dr. Glauber. Yes; thanks, Senator. And I would just say, if
you looked at the history of the GATT, one thing that was
evident is that agriculture was largely outside of it and we
had very distorted markets. I think with U.S. leadership during
the Uruguay Round, we brought agriculture within the WTO. We
gave it disciplines on domestic support. And in fact I think
these are disciplines--some of the work done on domestic
support now is being looked at as a potential model for looking
at industrials.
So I think all that has resulted in enormous growth in
trade, both exports and imports, and I think both U.S.
consumers and U.S. producers have benefited from that.
Senator Carper. Thank you all. Ms. Kuruc, I am going to ask
you to answer that same question for the record, because my
time has expired.
The Chairman. Thank you. Is Senator Brown available
virtually? Otherwise, I will go----
Senator Brown. Yes, Mr. Chairman, I am. Yes, sir. Thank
you.
The Chairman. Go ahead, Senator Brown.
Senator Brown. Thank you, Mr. Chairman, for this hearing. I
really appreciate it. I enjoyed Senator Carper's questions.
Ms. Hillman, I want to talk to you. I know you have
extensive training and experience, including at the WTO, so I
am going to focus my questions on you today.
U.S. trade remedy laws help American workers fight against
companies and countries who cheat, particularly Chinese state-
owned enterprises. For years I have expressed my concern that
WTO and its constituents have undermined these important trade
enforcement tools. And I would like a ``yes'' or ``no'' answer
here. Do you agree the Appellate Body has unfairly targeted and
weakened U.S. trade remedy laws, Ms. Hillman, yes or no?
Ms. Hillman. Yes, I do.
Senator Brown. Thank you. You served as a telemember of WTO
from 2007 to 2011. Based on your experience, can you name one
example when the WTO has purposely taken steps to expand worker
rights either in the U.S. or elsewhere in the world?
Ms. Hillman. On workers' rights, I think it is difficult,
because there are not specific disciplines in the WTO, so there
were not specific challenges related to workers' rights, at
least not during my time at the WTO.
Senator Brown. That is exactly right. I mean, I think
that--I cannot think of a single time when the WTO purposely
put workers at the center of its objectives, and I think that
is a fundamental flaw in the organization.
As you know, Senator Wyden and I, the ranking member,
authored a provision in USMCA, the Brown-Wyden rapid response
mechanism. Probably the USMCA would not have passed the House
and Senate were it not for that, because it brought in a lot of
support, because there is a lot of support in this Senate for
allowing workers to report when a company has violated their
labor rights and to see action within months if violations
occur.
We designed the provisions, I think you know, to ensure
workers had a say on the enforcement of an agreement that will
have a direct impact on their lives. WTO decisions affect the
lives of workers in the U.S. and around the world, as you know.
In what way did you or other members incorporate workers'
interests when you considered cases before the Appellate Body?
Did you reach out to unions or other advocates to hear how the
decisions that you made might affect workers in the U.S. or
around the world?
Ms. Hillman. No, Senator, there is not really a process
within the WTO dispute settlement. The disputes are government
to government. So all of the presentations that are made before
panels of the WTO and before the Appellate Body are made solely
by governments. There are not direct witnesses. There is not
the taking of direct testimony before the Appellate Body.
The decisions are made on that record. So we were very much
limited by what the governments chose to present in their
disputes. And I would suggest that workers' issues, workers'
rights, and workers' claims were rarely if ever raised by those
governments.
Senator Brown. Does that mean that you think Appellate Body
reform should include putting workers more at the center of
enforcement provisions?
Ms. Hillman. Certainly it would be important for workers'
rights and issues to be made a part of the consideration within
the rules that are being applied. I am not sure how to do so
directly; in other words, the dispute settlement system is
simply applying the rules as they were written. And the issue
that you are clearly pointing out is that the rules today do
not include----
Senator Brown. Would you support--I am sorry to cut you
off, Ms. Hillman. Would you support rewriting provisions so
that that can be the case?
Ms. Hillman. Yes.
Senator Brown. Okay; good. You have been quoted as saying
critics of modern trade deals ask them to do too much. I am a
critic of modern trade deals because I think they create a race
to the bottom that undermines workers' economic security, which
hurts our economic strength and national security.
Do you agree with that, or disagree?
Ms. Hillman. Again, I think there has to be an
understanding of the link between what trade does and what is
done on the domestic side. So I think a lot of what has not
happened, particularly I would say in the United States, is the
kind of long-term support for worker training, for worker
development, that would allow American workers to remain as
competitive as they need to and should be. And I think it is
important that trade agreements and trade policy start to
recognize the important link between trade and domestic
policies affecting the competitiveness of our workers and their
long-term training, health, and other matters.
Senator Brown. But you are not saying that trade deals have
cost us jobs--well, let me ask it another way. You are putting
all of this on worker training, not on the way we write trade
laws to advantage corporations over workers?
Ms. Hillman. I think it is a more complicated question than
that. So I am suggesting that I think the major benefit of
trade agreements is to open new doors. And the question is, who
walks through that new door once it has been opened? And I
think it is very clear that those who walk through that door
are those with capital and those with know-how. And so to that
extent, I do think those who are lacking in capital and know-
how are disadvantaged by the fact that they are not readily
able to walk through that new market access door that the
agreement opens.
Senator Brown. So low-skilled workers do not figure in
trade agreements?
Ms. Hillman. Again, I think they are left out.
Senator Brown. They are left out.
Ms. Hillman. They are left out. In other words, I think
their considerations are not as readily taken into account,
because when you open up that new market, which is what a trade
agreement is supposed to do--open up a market for American
goods, American services, American farm products--those who are
able to take advantage of that new market access are those who
are swiftly and readily able to take a walk through that market
access door. And that often requires both capital and know-how.
Senator Brown. So trade agreements--in closing. I will
close, Mr. Chairman; thank you. Trade agreements, if they say
they are about opening up markets, they are also agreeing for
corporations to take advantage of cheaper, unskilled labor
which out-competes, on a not-level playing field, more
expensive labor in another country. And that is what has
happened with many of the trade agreements and enforcement that
I think you have been involved in.
Thank you, Ms. Hillman. Thank you, Mr. Chairman.
The Chairman. Senator Thune?
Senator Thune. Thank you, Mr. Chairman.
In many parts of my home State of South Dakota, and
probably some in your home State of Iowa, Mr. Chairman, WTO is
a bad word. And that is because South Dakota ranchers feel like
the WTO is not with them. And I would say, who can blame them,
when the WTO has ruled against them in major disputes impacting
their livelihoods, like the country-of-origin labeling case?
Still to this day, it makes no sense to most South Dakotans
why the T-shirt that they wear can say ``Made in Country Y,''
but in most instances, the beef that they eat cannot. So my
question for this panel is--if you could answer it ``yes'' or
``no,'' and then I have a follow-up question--do you believe
that the WTO decides agriculture disputes involving the U.S.
fairly? Ms. Hillman?
Ms. Hillman. I think if you look in the main, the vast
majority of the agriculture disputes that have been brought to
the WTO by the United States, we have won those. So in general,
the WTO has ruled in favor of the United States in the vast,
vast majority of agriculture cases. I think the case that you
are pointing out over country-of-origin labeling is one of the
exceptions. And I would only point out that it does not happen
to have been decided under the agriculture rules. That decision
was decided under the technical rules--technical barriers to
trade.
And I would agree with you that there was a lot that was
wrong in that decision. But in the main, I think the decisions
have been in favor of American agriculture.
Senator Thune. Dr. Glauber?
Dr. Glauber. I would agree with Professor Hillman. I think
that in the main, the U.S. has done very well with the dispute
settlement process. We do not have time to talk a lot about the
COOL ruling, but I would say this, that any beef cuts that are
coming in from Canada or Mexico have the country-of-origin
labeling. What that case was about was animals that came from
Canada or Mexico coming into the U.S. being finished and then
slaughtered, that they would have to have that labeling.
I think there are some technical aspects of that agreement
that I would disagree with, but again I think generally we have
done very, very well at the WTO dispute settlement body.
Senator Thune. Does anybody have a different view than
that? If not, my follow-up question then is----
Mr. Graham. Mr. Thune, could I say very briefly, I think
agriculture has done well at the panel stage, the consultation
and panel stage. Maybe less well at the Appellate Body stage,
which is where the labeling decision we are talking about was
made, and as Jennifer said, it was not made under the
agriculture rules.
And I think there were problems with that decision.
Senator Thune. So how then do we fix the impression that
these cases are being decided unfairly? Which, again, is
certainly how most of my constituents feel. Maybe we have not
been as affected by the decisions that have gone in our favor,
but they certainly seem to go against us a lot.
Congress has acted more than once to pass country-of-origin
labeling, and it gets appealed. And it is very hard to explain
why some products that come into the United States are labeled
accordingly, but for something that we consume, that we eat, we
cannot seem to get a ruling that recognizes that people in this
country would like to know where in the world their beef is
coming from.
I mean, it is just--does anybody know how we change the
perception or the impression that people have out there?
Mr. Graham. May I start off on that? If we were to dig into
the weeds a bit more in reform, there are two problems with
regard to agriculture and other areas--I think particularly
trade remedies as well--that the people on the Appellate Body
deciding them do not have backgrounds in. And one thing we
might consider for reform is somehow bringing to review panels
a wider range of experience, or experience in some of these key
areas. That is first.
Second, I think, again in the weeds of reform particulars,
we need a means of review that is more flexible than the ``up
or down'' votes in the dispute settlement body. When the
Appellate Body makes a decision, it will be approved and become
official unless a consensus opposes it, and that has never
happened. So it is virtually automatic. There needs to be a
better means of reviewing decisions that are arguably flawed,
or that a case can be made are flawed.
Senator Thune. All right; let me quickly shift. Ms.
Hillman, it was recently announced by the UK that it was
following the U.S.'s lead and would be banning Huawei 5G
technology from its networks. I am concerned that many of our
other allies and trading partners may not be taking adequate
steps to secure their 5G networks. And in addition to changing
our domestic trade policies and laws, do you think there is
potentially a role to be played by the WTO in advancing
security of the global communications networks?
Ms. Hillman. At this point, Senator, where the WTO would
come into play is, where do you draw this line between trade
and national security? And at this point, the rules in the WTO
are simply to say that you are allowed to do a whole series of
measures if you can justify them as being done under the terms
of what is referred to as Article 21 of the GATT under the
national security rules.
So right now there are not per se rules that would affect
this. But where the WTO may come into play is helping create a
very clear line between what is a genuine national security
risk versus what is a protectionist trade policy. Because China
is going to want to say, ``No, everybody is doing this just for
protectionist reasons.'' And what we need to make sure that we
can do very clearly and without too much burden is to push back
and say, ``No, this clearly falls within the national security
exception,'' and therefore the efforts that the United States
and others are doing to try to keep Huawei out are justifiably
done for legitimate national security reasons. And we need to
make that easy and quick in order to make that basic
distinction between trade protectionism versus national
security.
The Chairman. Senator Portman, are you ready virtually?
Senator Portman. Thank you, Mr. Chairman.
The Chairman. Go ahead.
Senator Portman. First of all, thank you and Ranking Member
Wyden for holding this hearing. It is a really important
matter, and I appreciate what you said at the outset, and
Senator Wyden said at the outset, and I agree with you that WTO
is incredibly important. But it is also broken. And we need to
put these reforms through, and we need to do everything we can
here in the Congress to try to come together with a consensus
on this, because it is going to be challenging.
To our witnesses, I appreciate your expertise.
Ms. Kuruc, I was glad to see your cautious optimism that
the new text circulating could possibly be successful on
fishing subsidies. As Senator Wyden said, I worked on this 15
years ago as USTR for President George W. Bush, and we thought
we were close then. So it is an important issue for us both, an
important issue for the oceans--and I was glad to hear that--
and we need to push as hard as we can to help with that.
I am also pleased that we seem to be focusing on WTO reform
today, Mr. Chairman, as we have successfully completed USMCA
and China Phase One. It is time to turn to this multilateral
issue that we face. And people are watching. I think the world
is really watching what we are doing here in the United States
Senate. In particular, the desire for reform I think cuts
across party lines. I heard that this morning from both
parties. I think it cuts across branches of government. I know
the executive branch has concerns, as has been discussed.
I sat right here before you, Mr. Chairman--and Senator
Wyden by the way, who was on the committee at that time--in
2006, and I criticized the WTO overreach by the Appellate Body
on antidumping rules and on zeroing. So this is a longstanding
concern that administrations have had, as you have indicated,
through various parties. I see three major related, yet
distinct, problems with the WTO.
One thing is, as we have talked about today, the judicial
activism by the Appellate Body. I think it has weakened the
multilateral system. Second, clearly the WTO has been unable to
negotiate these new agreements. And I worked hard on the Doha
agreement, and people forget that there even was a Doha
agreement. Those negotiations have stalled. And then third,
both of these problems have made the WTO ineffective at
addressing the challenge that China's non-market, I would say
techno-nationalism has posed to the multilateral system. I
think China, as was said earlier, is the huge issue that has to
be addressed as part of these reforms.
Mr. Graham, I turn to you first. Can you briefly explain
how judicial activism by the Appellate Body has prevented
members from addressing the issues we are seeing right now with
regard to China?
Mr. Graham. Thank you for that, Senator Portman. I
appreciate that opportunity. And in fact, had you not asked the
question, I would possibly have wanted to intervene on that
point.
Judicial activism, particularly in terms of filling gaps--
as we all know, gaps or ambiguities exist in agreements, often
because the parties could not agree, and they agree not to
agree on them. When the Appellate Body fills those gaps, it
makes negotiations more difficult in the future, because
negotiators worry about how those silences will be filled, and
so they do not want to leave them. They have to cross every
``t'' and dot every ``i,'' and they also are uncertain whether
it is necessary to negotiate if the Appelate Body makes broad
decisions. So there is an interaction between judicial activism
and the difficulty of reaching agreements.
Senator Portman. Thank you. I think we cannot look at these
Appellate Body issues in isolation. In a way, it is the canary
in the coal mine for the multilateral system, and I appreciate
your work on that. I want to follow up with you after this
hearing.
Senator Wyden and Senator Grassley both talked about the
need for reform, and that it could be bipartisan. The chairman
noted that Senator Cardin and I have recently introduced a
resolution that expresses support for the multilateral system
and the need for a WTO, but also proposes some specific reforms
such as exploring plurilateral agreements without MFN, which I
think is helpful with regard to China; restoring the ability of
members to use safeguards and trade remedies; and other changes
basically to bring the WTO into the 21st century and strengthen
the ability of WTO members to respond to China's non-market
practices. The purpose of this resolution we have introduced, I
think is really threefold.
First, we want to get more specific about the concerns at
WTO and put those out there. Second, we want to propose
solutions so that the world sees that we are not just
complaining, we have some specific solutions. And third, we
want to make clear that we see the rebalancing of the WTO in
favor of negotiating as the primary guide when considering the
value of various ideas on WTO reform.
We have worked with Chairman Grassley on this proposal. We
have also worked with Ranking Member Wyden, and we also have
worked with USTR, and we have appreciated the input from all of
them. And we are certainly open to other ideas.
So I would ask today, Mr. Chairman, that we hold a hearing
on this--that is important--but also that we consider a markup
in this next opportunity we have in September now. And I would
like to be able to mark up a resolution in the fall. Again,
Senator Cardin and I have one. Others may have other ideas.
I believe it could receive overwhelming bipartisan support
if done properly, and I think it could send a very strong
signal in terms of the need for WTO reform, and then specific
ideas as to how to do it.
The Chairman. I will be glad to consider your request for a
hearing. I have to see how our schedule of hearings is. I do
not have it in my mind now, but we can surely consider what you
have asked us to do.
Senator Warner, virtually. Senator Warner?
[No response.]
The Chairman. Okay, then we will go to Senator Hassan.
Senator Hassan. Well, thank you, Mr. Chairman, and to
Ranking Member Wyden as well, for holding this hearing. And
thank you to all of our witnesses for your expertise and your
presence today.
Ms. Hillman, I will start with a question for you.
Shortcomings in the WTO's dispute resolution process have long
affected the ability of the United States to respond to unfair
trade practices across a whole variety of sectors. For example,
the New Hampshire timber industry has struggled for decades
with unfair practices that put it at a competitive
disadvantage.
Ms. Hillman, going forward, how can we reform the WTO to
address past shortcomings and to ensure that the dispute
resolution process does not hinder application of our trade
remedy laws?
Ms. Hillman. Thank you, Senator Hassan. I would say in
general, I think the WTO dispute settlement system has been a
significant net win for the U.S. in terms of the number of
victories. And I outlined a lot of that in my testimony.
But the area that you are talking about, you are absolutely
correct. It is the one place in which the WTO Appellate Body
has gotten it wrong and has clearly cut back on the U.S.'s
ability to use antidumping and countervailing duties and
safeguards. That is where the problem really lies.
And to me, there are a couple of ways to think about it.
One is, I think you could really consider creating an entirely
separate appeals process made up solely of trade remedy experts
who could hear the trade remedy cases, so that you have really
brought a different level of expertise.
The second way to do it is to think about a totally
different standard of review, where you are basically telling
the Appellate Body and the WTO dispute settlement system that
when it comes to trade remedies, you need to give deference to
the investigating authority, to the U.S. Commerce Department,
to the U.S. International Trade Commission, to say if you have
done a fact-based investigation where the facts show enough to
show that, yes, there were dumped goods, yes, there were
subsidized goods, then you should simply give an appropriate
amount of deference to those investigating authorities and
should not be easily, readily overturning the decisions that
they have made.
So I think there are ways to get at this. And your question
goes right to the heart of it.
The second part of your question, though, goes to the issue
of softwood lumber, trading lumber, and timber, and there the
problem is the disciplines on subsidies. And it really goes to
the heart of the problem with China.
The disciplines in the subsidy rules are simply not good
enough. And so in that area, we do need to rewrite the
underlying rules themselves. It is too hard to prove subsidy
cases. It is too hard particularly in economies like China
where you cannot get your hands on any of the data or any of
the information. The evidentiary burden is too high and the
remedy is not good enough.
So your question goes to two really key issues of reform
that are needed in WTO.
Senator Hassan. Well, I appreciate that, because we
obviously need to get at the subsidies issue generally. We also
need to provide stability to the timber industry, as well as
the other sectors that have been affected by the kind of
shortcomings we have just talked about. So I appreciate it very
much.
Ms. Lane, I want to turn to you for a minute. The
bipartisan U.S.-Mexico-Canada Trade Agreement which went into
effect earlier this month created platforms to help small
business exporters. As Congress considers WTO reforms, we
should be focused on similar ways to support small businesses
engaging in international trade.
Ms. Lane, what recommendations do you have to support small
exporters through WTO reforms?
Ms. Lane. We need to definitely take some of the provisions
that were included in the U.S.-Mexico-Canada Agreement and
bring them into the WTO. We need to specifically have
mechanisms that help understand the challenges that small
businesses face, and provide the tools so that they can use
them to be able to trade more.
Everything starts at the borders and ends at the borders
for so many small and medium-sized businesses, and that is why
we are such champions of the Plurilateral Trade Facilitation
Agreement, because it makes borders more efficient.
But we need to be doing more to make those processes easier
to follow. Just taking those processes electronic is a simple
way that small businesses can be able to engage in more trade,
but also, making the rules a lot more simple. We started to do
that, and have captured that in the USMCA. Bringing all of
those new provisions, plus the mechanisms that specifically
focuses on the challenges of small businesses, into the WTO is
going to foster so much trade for all of these great companies.
Senator Hassan. Well, thank you for that. I have one more
question, which is, what specific things do you think we could
do to expand access to trade opportunity for women- and
minority-owned small businesses?
Ms. Lane. I am so glad you asked that question, because
that is such an important issue, particularly for UPS. We know
that empowering women and allowing them to trade is not just
the right thing to do, it is a smart business decision. And
that is why we have dedicated so many resources to our Women
Exporters Program, really helping women be able to understand
how to engage in trade, giving them the tools, and providing
them the mentorship as well as great logistic services to get
their products around the world.
But what is really important is the legislation that you
have introduced, and it is the Women's Global Empowerment
Development and Prosperity Act. When we recognize that women
are at the center of an important part of U.S. foreign policy,
we do so much to lift up women around the world.
The fact of the matter is, women in some parts of the world
cannot own property in their own name. They cannot open a bank
account to be able to conduct business. Sometimes they cannot
even travel without permission to be able to go across borders
and sell their products.
If we can get the WTO to recognize that women are important
for resiliency and economic recovery and eliminate that
discrimination that just is out there and exists in too many
countries' laws, then we can really be lifting up 50 percent of
the world's population. Your leadership has been tremendous.
And I would say to all of the members of the committee, the he-
for-she Senators, we need to stand by the Senator and get her
legislation passed. Because when women are empowered, the women
of the world win, and the world wins. Thank you.
Senator Hassan. Thank you. And thank you for your
indulgence, Mr. Chairman.
Senator Carper [presiding]. You are quite welcome. You were
worth waiting for.
All right; I am going to try to figure out how to go
forward here with the help of our staff. I understand that
Senator Cassidy might be next in the lineup. Are you with us?
Senator Cassidy. I am here.
Senator Carper. We will hear from Senator Cassidy at this
time.
Senator Cassidy. Can you hear me, Mr. Chairman?
Senator Carper. Yes, Dr. Cassidy. Please proceed.
Senator Cassidy. I wondered why you were so lax upon
Senator Hassan going long, but that is clearly because there
was a change of chairmen.
So thank you all. I have industry--I am from Louisiana. My
rice farmers, my shrimpers, my fisheries are all concerned
about the issues you have raised. And others have already
discussed some of these specific concerns.
But, Mr. Graham, there seems to be a macro issue here,
which is that China continues to exploit certain aspects. They
are a developing country, and yet they are the second largest
GDP in the world. They are considered a recently seated
country, even though they have been there 10 years. And it
seems like we kind of make statements, this is what you should
do, and either there is not compliance--Dr. Glauber I think
said it at some point, they are in the process of complying--
but I am concerned that process sometimes takes a long time.
So, to the macro issue, can WTO be an effective
organization if China, as big as they are, just makes a
decision that they are going to attempt to exploit every
loophole and/or do whatever they can to thwart the ability of
the WTO to rein in their unfair trading practices?
Mr. Graham. It can be an effective instrument. Its
effectiveness has been very limited so far because of what I
would regard as poor dispute settlement decisions, largely by
the Appellate Body, and by such things as the Chinese
Government involvement in state enterprises--and Chinese prices
sometimes being artificially low but treated as market prices
for purposes of trade remedy laws. That is specific.
Second, regarding China's general approach, I think those
specifics are more important day-to-day than the question of
whether they are a developing country or not. They get certain
advantages by the latter, but the day-to-day effect is felt
more in competition with them and advantages that they gain as
a result of settlement dispute decisions.
Long-term, whether China will join in with a fundamental
reform of the rules, including the dispute settlement rules, to
address those things, frankly remains to be seen. Recently
there has been a statement by a Chinese representative that
they did not like that view, but it remains to be seen. But it
has to be done. The reform exercise has to be pursued, and then
we will see.
Senator Cassidy. Well, we are not patsies. We do not have
``stupid'' written across our face, theoretically. So is your
best guess that they will, if given the chance--or more the
hope that we had when they originally came into the WTO--that
if we act in good faith, they in turn will act in good faith as
well?
Mr. Graham. My best guess is that in the end they will come
around. But my view is that we should not have ``stupid''
written across our face and unduly go easy on them or unduly
stop short of reforms that need to be made with regard to them
in order to bring them in. And that is where I think we are
eyeball to eyeball.
Senator Cassidy. Ms. Hillman, you obviously feel as if we
have retreated unnecessarily from the process. And yet it does
seem that, as I just described, China is intent upon exploiting
everything they can to make it ineffective.
So let me ask you the same question I just asked of Mr.
Graham. Until we resolve an approach to China, is the WTO going
to be as useful vis-a-vis China, since they are clearly--they
have been mentioned over and over, whether it is fisheries or
rice subsidies, in terms of my State and others. We have not
even discussed some other things that are very pertinent. What
would you say to that?
Ms. Hillman. Well, my own view is that I think we need to
do a better job of using the WTO to push back on China. I have
long----
Senator Cassidy. So let me ask. Again, we have heard about
fisheries, that they are oversubsidizing. I looked at the WTO
rules on worker rights, and there are core values that each
country is supposed to agree to, including no forced labor, and
China notoriously uses forced labor.
And when Senator Brown was speaking about our trade
agreement, I have recently learned that our environmental
requirements and worker rights requirements within USMCA
actually put Mexico at a competitive disadvantage relative to
China because they do not allow any of that. And so therefore
it is cheaper to produce in China as opposed to Mexico.
So continue it, but with that context and my understanding.
Ms. Hillman. So my own view is the best thing that we can
do is to bring a very big, bold, and comprehensive coalition-
based case against China. Because an awful lot of what they are
doing is a violation of the WTO rules. But the United States,
and many other countries, have not pushed China to be held to
the rules that it has agreed to.
Some time ago I testified in front of the U.S.-China
Security and Economic Commission to recommend exactly this, a
big case against China that would include 12 specific
violations, including the kind of subsidies that you are
talking about--an entire list of complaints where China is
violating the commitments that it made when it joined the WTO.
Why do it in a big, bold case? Because I think there is
safety in numbers in terms of having a whole coalition of
countries going after China. I also think it would make it much
harder for China to get out from under trying to comply with a
very big case like that that touched on subsidies, intellectual
property, technology transfers, some of the labor issues that
you are mentioning, the agriculture issues that you are
mentioning, the requirement that China have an independent
judiciary reviewing trade decisions. There is an entire list in
this where I think you could put together a case that would
have 12 or 13 very substantial claims against China, and do
that, and do it now.
In other words, make the WTO----
Senator Cassidy. Before we get cut off by our lenient----
Senator Carper. I am afraid we are going to have to cut you
off. Really quickly, Dr. Cassidy. Really quickly.
Senator Cassidy. No, no, no, I was trying to take back
because I knew that we had to move on. Thank you, Mr. Chairman.
Thank you all.
Senator Carper. All right; that is all right. Thanks.
Okay, next, if she is ready, is Senator Cortez Masto. Are
you there?
Senator Cortez Masto. I am here, and thank you to the
panelists. And I think, Mr. Graham, you wanted to respond,
because it was a great question, so please go right ahead and
respond to Senator Cassidy's question.
Mr. Graham. Thank you for the opportunity. I wanted to
respond to what Jennifer just said. I think it underscores the
points that should be covered in a negotiation with China. How
would such a case be brought now, even if there were a
functioning Appellate Body? If it had been brought last year, I
have no confidence that the Appellate Body would have come out
correctly--it might have been 2 to 1, possibly. And the
institution is not prepared or in shape to entertain anything
like such a big, broad-based complaint.
That underscores the need for reform. All of those things
that Jennifer mentioned are things that need to be negotiated
together with the rules and dispute settlements over, however
long it takes. And there is no case to be brought now. There is
no entity to bring it, and no likelihood of success. Thank you.
Senator Cortez Masto. Thank you. Thank you for that. I do
want to get to reform. I so appreciate this panel's
conversation. I have been in Banking, so I may ask some
repetitive questions here, but I do want to start with this.
Senator Casey and I recently introduced the Women's Economic
Empowerment in Trade Act, an important piece of legislation
that is a first step for shifting the conversation to focus on
workers' rights and the right of women to have equal protection
under the law, particularly in the trade space.
And, Ms. Hillman, I want to thank you. The Council on
Foreign Relations recently hosted both of us on a virtual
roundtable series to talk about women in foreign policy. We
were able to discuss the role of women and the role they play
in the trade economy. Thank you so much to the CFR for that
great conversation.
So let me start with you, as you specialize in U.S. trade
policy and the law and politics of the WTO and international
organizations. Would you care to make any comment or
observation on the importance of elevating women in a global
economy?
I know Ms. Lane talked about it, but I would love for you
to weigh in as well.
Ms. Hillman. I do not think it can be overstated how
important it is, because women make so many of the economic
decisions around the world. Empowering women makes a huge
difference.
And again, I think you saw this in 2017 at the ministerial
meeting of the WTO. There was an effort to create a women's
initiative. And the fact is that the initiative passed and that
so many countries joined it, and then following on from that
there has been so much work done to understand why it is so
much harder for women to fully engage in trade, and all of the
things that Laura Lane just talked about.
The idea that in so many countries women cannot own
property, cannot open a bank account, cannot set up a business,
cannot do a lot of these things when they are the drivers of
the economy in so many other places, I think underscores how
important it is to see the role that women need to play in the
trading system.
So I think all efforts to try to make sure that we are
constantly aware of that are extremely important. And I think
this message has been very, very well received at the WTO.
There is much more of an effort to literally scrub through
every single aspect of the WTO agreements to try to find out
where the language may appear to be neutral when you read it,
but when you think about what its implications are, you
discover that it is actually having a drag on the ability for
women to fully engage in trade.
And that effort to rethink and rewrite an approach to the
rules that is not just gender-neutral but is really taking
onboard the impediments to women, I think is a serious effort
at the WTO, and I think it needs to be underscored. And I
applaud your efforts to be part of this process, and thank you
for the legislation that you have introduced, because I think
it is making an extremely important contribution.
Senator Cortez Masto. Thank you. And I notice that my time
is up, so I want to let others get questions in before the vote
closes. Thank you all on the panel. I will submit the rest of
my questions for the record. I so appreciate the conversation
today.
[The questions appear in the appendix.]
Senator Carper. All right; thank you, Senator Cortez Masto.
Senator Whitehouse, I think you are next.
Senator Whitehouse. Great. Thanks so much, Mr. Chairman.
Thank you all for being here.
First, Commissioner Hillman, as we deal with climate
change--which, by the way, thank you for having the temerity to
mention it in your prepared remarks. This and the board room of
Marathon Petroleum may be the only two buildings in the country
where people do not have a sensible discussion about climate
change. But if you look at climate solutions, and you look at
what has been the prominent climate solution proposed on the
Republican side, by corporate America, by the sort of
libertarian-leaning think tanks and so forth, they all come to
a price on carbon. In fact, today thousands of students around
the country just issued a joint statement of student campus
organizations supporting a price on carbon. So it has a real
foothold here.
The critique of it is that, well, the company in America
that has paid a price on carbon is going to lose its business
to the company in Canada or Mexico, right across the border,
that does not have to pay a price on carbon. And the answer to
that, of course, is a border adjustment that makes that
correction.
Is it possible to have border adjustments that solve the
competitive problems created by a carbon price that happens in
one country but not in another? And could such a border
adjustment meet WTO muster?
Ms. Hillman. Absolutely yes, Senator. And there is----
Senator Whitehouse. To both questions?
Ms. Hillman. To both questions. Yes, you can put a border
adjustment on, and, yes, you can do a border adjustment that is
fully consistent with the WTO.
Senator Whitehouse. Thank you.
Ms. Kuruc, if I could get you for a second on ocean stuff.
My time is a little bit short, so some of this you may have to
respond to for the record in writing, but there is a lot of
bipartisan interest in oceans in Congress. I see it firsthand
in the Senate.
And we have issues where I think you would find enormous
bipartisan support like the China fleet, about which you
testified, which is out there ruining oceans and bullying
neighbors and ignoring rules and boundaries, all well as acting
as an instrument of policy of China.
Generally we have done some good stuff on pirate fishing.
We did all the pirate fishing treaties. We have done the Port
State Measures treaty. We did the Port State Measures
legislation, all of this by unanimous consent in the Senate,
all Republicans and Democrats together.
Could you let us know two things? One, what should we be
pressing China on, because I think you have a ready audience
for that. And two, what should the Oceans Caucus, our
bipartisan oceans group here in the Senate, be looking at as
the next steps on controlling pirate fishing, including
enforcement? I know you said that is not all of it, but
enforcement is a lot of it. We have these new technologies for
satellite-based wake recognition software and so forth.
So if you could, answer on those two things.
Ms. Kuruc. Sure. Thank you very much, Senator Whitehouse.
Quickly, just to say that, initially, I think one of the
biggest things that China needs to do is be more transparent.
They need to provide data. They need to provide information
about all sorts of things that they are doing.
Part of the reason that we do not know the full extent of
so many of their activities is because they are sort of
characteristically a very secretive society. They refuse to
provide information. And this has just happened over and over
and over again.
Senator Whitehouse. Would you send me a proposal?
Ms. Kuruc. Happy to.
Senator Whitehouse. Great. And one last thing on plastics.
We are trying to engage more and more on plastics. We just had
a hearing in Appropriations where the Republican subcommittee
chairman promised that he would support a fund for
international ocean plastic cleanup.
PROBLUE is out there already. What do you think, with
respect to a plastics treaty, should be our next steps, given
that so much of the plastic waste that gets thrown into the
ocean comes from maybe a dozen countries and a dozen rivers? If
we could clean up a dozen countries and a dozen rivers, we
would really get way ahead of the problem.
Ms. Kuruc. Yes; I completely agree. It is not only the
cleanup. It is about curtailing the production, and making sure
that there are facilities in those megaproducers to actually
deal with all of the products that they do not have adequate
facilities for disposing of, or recycling, or reducing.
Senator Whitehouse. So if you--and I will throw in Ms.
Hillman also, if you are interested--if you have ideas for us
on what our best options are through the international treaty
process for improving our international performance on ocean
plastic waste, if you could send me that list as well along
with your China transparency list, I would be grateful. And my
time is up.
Thank you. Thank you, Mr. Chairman.
Senator Carper. Thank you for those questions. I very much
approve that line of questioning. I am sure almost all of us
do.
Is there anyone else who would like to be recognized for a
question to our witnesses?
[No response.]
Senator Carper. Hearing none, the chairman had to go vote.
He was kind enough to ask me to sit in for him for the
conclusion of this hearing.
So I want to say to Mr. Graham, to Ms. Hillman, to Ms.
Lane, to Dr. Glauber, to Ms. Kuruc, thank you very, very much
for joining us today. We want to thank our colleagues who were
able to be here in person and those who have joined us
remotely. I thank our staffs for helping to make all this work,
and it worked flawlessly, as far as I could tell.
But we want to especially thank our witnesses for taking
time out of what we know are busy schedules to come here to
speak to us, to share your thoughts, and to respond to our
questions. Your input on an extremely important topic is much,
much appreciated.
I would request that Senators with questions for the record
please submit them by close of business on August 14th.
And with that, this hearing is adjourned.
[Whereupon, at 12:16 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Joseph W. Glauber,\1\ Ph.D., Senior Research
Fellow, International Food Policy Research Institute
---------------------------------------------------------------------------
\1\ The views expressed are those of the author and do not reflect
those of the International Food Policy Research Institute or the
American Enterprise Institute. The American Enterprise Institute in a
nonpartisan, nonprofit, 501(c)(3) educational organization and does not
take institutional positions on any issue.
---------------------------------------------------------------------------
Chairman Grassley, Ranking Member Wyden, and distinguished members
of the committee, thank you for the opportunity to testify before this
committee on the current state of agricultural trade and the World
Trade Organization. I am currently a senior research fellow at the
International Food Policy Research Institute and visiting scholar at
the American Enterprise Institute. Prior to coming to IFPRI in 2015 I
spent over 30 years at the U.S. Department of Agriculture, where I
served as Deputy Chief Economist from 1992 to 2007 and Chief Economist
from 2008 to 2014. In addition, from 2007 to 2008 I served as Special
Doha Agricultural Envoy at the office of the U.S. Trade Representative,
where I was the U.S. Chief Agricultural Negotiator in the Doha talks at
the World Trade Organization.
Global agricultural trade has seen tremendous growth since creation
of the WTO in 1995 and U.S. agriculture has been a major beneficiary of
the rules-based system that the United States and others helped create.
The challenges to meet growing global food demand include population
and income growth and supply uncertainties complicated by a changing
climate, environmental pressures and water scarcity. All of those point
to the increasing importance of trade and need for a more, not less,
open trading system. A strong WTO is critical to helping meet future
food needs.
agriculture in a rules-based global trading system
Today, almost 25 years after the creation of the WTO, many may have
forgotten the state of the trading environment facing agriculture in
the 1980s. D. Gale Johnson, a prominent University of Chicago
economist, referred to it as a ``world in disarray.'' Many markets were
highly protected through high tariffs, limited quotas, or outright bans
on imports. Variable levies were in place in many countries, which
allowed countries to adjust tariff levels to protect domestic markets
as world prices fell or rose. Domestic support to agriculture,
particularly among the rich developed members such as the U.S., Japan,
and the EU, was large and growing. Producers in those countries made
production decisions largely insulated from the world market.
Governments propped up domestic prices by storing production in large
public stockpiles, by maintaining high tariff barriers, or both.
Governments dumped surplus production on export markets, using export
subsidies and restitutions. This further distorted markets and harmed
other exporters, often developing countries that had little or no means
with which to protect their own producers and limited recourse within
the General Agreement on Tariffs and Trade (GATT) to redress trade
disputes.
The Uruguay Round Agreement on Agriculture (AoA) brought
substantial discipline to the areas of market access, domestic support,
and export competition. Under the AoA, members agreed to convert non-
tariff barriers to tariff equivalents and, where necessary, to
guarantee minimum access to domestic markets through the creation of
tariff-rate quotas (TRQs). Developed countries were required to cut
tariffs (the higher out-of-quota rates in the case of tariff quotas) by
an average of 36 percent in equal steps over 6 years. Developing
countries were required to cut tariffs by an average of 24 percent over
10 years. Several developing countries also used the option of offering
tariff ceilings in cases in which duties were not ``bound'' (that is,
committed under GATT or WTO regulations) before the Uruguay Round.
In the area of export competition, export subsidies were capped and
then reduced in both value and volume. In Nairobi in 2015, WTO members
agreed that developed countries would immediately remove export
subsidies except for a handful of agriculture products and that
developing countries would do so by 2018 (with a longer time frame in
some limited cases).
Finally, under the AoA, domestic support levels were bound and
subject to reduction commitments (20-percent reduction over 6 years for
developed countries and 13-percent cuts over 10 years for developing
countries). Countries were encouraged to adopt support policies that
had minimal production- and trade-distorting effects and that were
exempt from reduction commitments (so-called green box policies).
growth in global agricultural trade
Global agricultural exports have more than tripled in value and
more than doubled in volume since 1995, exceeding U.S. $1.8 trillion in
2018 (figure 1). Rapid growth over the period 2000-2010 was due largely
to increases in commodity prices, reflecting the impact of several
factors on agricultural commodity markets. These included a substantial
expansion in biofuel consumption, higher energy prices, relative price
effects associated with a weaker U.S. dollar, and shifts in consumption
patterns in emerging economies such as China that favored meat, dairy
and other high value products. Since 2013, large global harvests and a
slowdown in the demand for biofuels have caused cereal and oilseed
prices to decline from peaks reached in 2012-13. Yet while agricultural
prices have declined somewhat since 2014, trade values and volumes have
continued to climb. And while the coronavirus pandemic is expected to
sharply curtail overall trade in manufactured goods, food exports will
likely be less affected for the simple reason that people must eat.
[GRAPHIC] [TIFF OMITTED] T2920.001
As trade levels have grown, so too has the importance of trade in
meeting domestic food needs. In 2019, for example, one quarter of wheat
consumed in the world was obtained from imports (table 1). Even for
rice, for which in most countries consumption is overwhelmingly met
from domestic production, globally import penetration more than doubled
(from 4 percent to 9 percent) over that period. Soybean imports
accounted for about one quarter of global consumption in 1995; by 2019,
such imports accounted for about 43 percent of consumption. Import
penetration for vegetable oils also increased at a similar rate. In the
meat sectors, both beef and swine imports have increased relative to
global consumption. Import penetration for chicken meat has remained
relatively flat at 10 percent, but global chicken consumption has more
than doubled since 1995. Import penetration rates for some dairy
products such as butter and cheese are lower than rates in 1995 partly
as a result of WTO export subsidy disciplines imposed on large dairy
exporters like the United States and European Union who had previously
used concessional sales and export subsidies to manage surpluses caused
by high domestic price supports. Imports of skim and whole milk powder
continue to grow in importance in global dairy trade and now account
for 35 percent of global consumption.
Table 1_Global Import Penetration Rates
(Imports as Percent of Domestic Consumption)
----------------------------------------------------------------------------------------------------------------
Commodity 1995/1996 2000/2001 2005/2006 2010/2011 2015/2016 2019/20f
----------------------------------------------------------------------------------------------------------------
Corn 12% 11% 12% 11% 13% 15%
----------------------------------------------------------------------------------------------------------------
Rice 4% 6% 7% 8% 9% 9%
----------------------------------------------------------------------------------------------------------------
Wheat 17% 18% 18% 22% 24% 25%
----------------------------------------------------------------------------------------------------------------
Soybeans 27% 30% 31% 37% 44% 43%
----------------------------------------------------------------------------------------------------------------
Vegetable oil 34% 33% 39% 41% 41% 41%
----------------------------------------------------------------------------------------------------------------
Sugar 29% 31% 32% 31% 32% 29%
----------------------------------------------------------------------------------------------------------------
Cotton 33% 31% 31% 44% 32% 37%
----------------------------------------------------------------------------------------------------------------
Beef and veal 10% 11% 12% 12% 13% 15%
----------------------------------------------------------------------------------------------------------------
Chicken 10% 8% 9% 10% 10% 10%
----------------------------------------------------------------------------------------------------------------
Swine 4% 4% 5% 6% 7% 8%
----------------------------------------------------------------------------------------------------------------
Butter 18% 6% 6% 3% 3% 3%
----------------------------------------------------------------------------------------------------------------
Cheese 21% 7% 8% 7% 6% 6%
----------------------------------------------------------------------------------------------------------------
Milk powder 47% 29% 25% 27% 28% 35%
----------------------------------------------------------------------------------------------------------------
Source: USDA, Foreign Agricultural Service, PSD online. 2019/20f = forecast as of July 12, 2020.
As global trade has grown over the past 25 years, an increasing
share of exports and imports has come from developing countries. From
1995 to 2016, the share of total food imports and exports accounted for
by developing countries grew from 26 percent to 39 percent and from 31
percent to 40 percent, respectively (table 2). If intra-EU trade is
excluded, developing countries' imports and exports accounted for
almost 60 percent of global food trade in 2016. South-South trade (that
is, trade between developing countries) also increased, accounting for
over 24 percent of total trade in 2018 compared to 12 percent in 1995.
Table 2--Share of Total Food Trade by Developing Countries
------------------------------------------------------------------------
Item 1995 2000 2005 2010 2015 2018
------------------------------------------------------------------------
Developing country 31.0% 32.5% 33.6% 38.4% 40.2% 40.2%
share of total
food exports
------------------------------------------------------------------------
Developing country 25.8% 28.2% 27.6% 35.6% 40.1% 39.9%
share of total
food imports
------------------------------------------------------------------------
South-South 12.2% 13.5% 14.9% 21.2% 23.7% 24.2%
exports as
percent of total
food exports
------------------------------------------------------------------------
Source: UNCTAD, UNCTADStat 2020
These trends are projected to continue over the next 35 years. The
Food and Agricultural Organization of the United Nations projects that
global food demand is expected to increase by as much as 50 percent
from 2012-2013 levels by 2050, as trends in population growth,
urbanization, and income growth are projected to continue, particularly
in developing countries. Population projections by the United Nations
suggest that 98 percent of the population growth expected between 2015
and 2050 will likely come from developing countries, with Africa south
of the Sahara accounting for more than 55 percent of that growth. With
income growth rates and urbanization rates also projected to be higher
in developing countries, much of the global demand growth for meats,
dairy, fruits and vegetables, and processed food products will continue
to come from these economies.
u.s. agricultural trade
U.S. agricultural trade has benefited greatly from the rule-based
system of trade ushered in by the WTO. U.S. agricultural exports
totaled almost $137 billion in 2019 (figure 2). Exports have more than
doubled since 1995, though they have remained relatively flat since
2015, in part due to the trade war with China (see below). Agricultural
imports have increased as well over the period, totaling $131 billion
in 2019. Much of what the U.S. imports is either not grown much here
(for example, coffee and cocoa) or is produced counter-seasonally (for
example, asparagus and blueberries). Counter-seasonal imports have
enabled U.S. consumers to purchase most fruits and vegetables year
round, which has led to increased per-capita consumption of those
foods, and have largely supplemented, not replaced, domestic
production.
[GRAPHIC] [TIFF OMITTED] T2920.002
Five markets--Canada, Mexico, China, Japan, and the EU (plus the
UK)--account for about 60 percent of agricultural exports from the
United States (figure 3). Twenty-five years ago, Japan and the EU were
the number one and two markets for U.S. agricultural exports, followed
by Canada, South Korea, Mexico and China. With implementation of NAFTA,
Canada and Mexico became increasingly more important trading partners
and by 2005 had surpassed the EU and Japan as the top U.S. agricultural
export destinations. Since then, exports to the EU and Japan have
remained relatively flat while that of Mexico and Canada have continue
to grow. With the accession of China to the WTO in 2001, U.S.
agricultural exports to China began to increase significantly. By 2012,
China had surpassed Canada as top market for U.S. agricultural exports
and remained as either the number one or number two export destination
through 2017. In 2017, for example, the U.S. agricultural exports to
China totaled $19.5 billion. Soybeans accounted for about $12.2
billion, or 62 percent of the total. To put this in perspective,
production from almost 1 in every 4 rows of soybeans harvested in the
United States that year ended up in China where it was processed into
protein feed for hog and poultry operations and soybean oil that was
bought by China consumers.
[GRAPHIC] [TIFF OMITTED] T2920.003
a world again in disarray?
Despite the substantial growth in global agricultural trade since
1995, there are a number of cross currents that bode poorly for the
world trading system.
Trade wars have threatened trade growth. The recent trade wars
between the U.S. and China, Mexico, Canada, and other trading partners
have been well documented by others.\2\ In 2018, in response to tariffs
placed on China goods by the United States, China placed counter-
retaliatory tariffs on a number of U.S. agricultural exports, including
soybeans. Total U.S. agricultural exports to China fell to $9.1 billion
and soybean exports fell by almost 75 percent, to $3.1 billion, the
lowest level since 2006. Brazil was a big beneficiary as China sourced
most of its soybeans imports from them in 2018 and 2019, and while the
United States was able to send some of its soybeans to markets that
would have normally imported from Brazil, overall, U.S. soybean exports
fell by $4 billion in 2018 and $3 billion in 2019.
---------------------------------------------------------------------------
\2\ See Peterson Institute for International Economics, ``Trump's
Trade War Timeline: An Up-to-Date Guide.'' Available at https://
www.piie.com/sites/default/files/documents/trump-trade-war-
timeline.pdf.
U.S. farm receipts fell in 2018 and 2019 and the Trump
administration responded by providing $28 billion to farmers and
ranchers adversely affected by the trade actions. Those payments,
combined with payments under the price and income support program and
Federal crop insurance program, have significantly increased trade-
distorting support reported to the WTO. U.S. trade distorting support
will likely exceed its WTO bindings ($19.1 billion) for 2019 (figure
4).\3\
---------------------------------------------------------------------------
\3\ Glauber, J.W., 2019. ``Agricultural Trade Aid: Implications and
Consequences for U.S. Global Trade Relationships in the Context of the
World Trade Organization.'' Washington, DC: American Enterprise
Institute, https://www.aei.org/wp-content/uploads/2019/11/Agricultural-
Trade-Aid-1.pdf.
[GRAPHIC] [TIFF OMITTED] T2920.004
Under the Phase One agreement signed in December 2019, China has
agreed to import $36.5 billion in U.S. agricultural goods in 2020. Thus
far, China agricultural imports from the U.S. through May totaled $7.5
billion, suggesting that imports over the remainder of the year would
have to be more than 2.5 times more per month than in the first five
months. While outstanding sales to China have been substantial, it is
unlikely that the $36.5 billion target will be met. Nonetheless, those
sales, if completed, may bring U.S. agricultural export totals back to
more historical levels. USDA will publish an updated forecast of U.S.
---------------------------------------------------------------------------
agricultural exports in late August.
Progress in multilateral negotiations since the Uruguay Round has
been limited. While the Doha Development Agenda (DDA) was launched with
much anticipation in 2001, members failed to reach agreement in July
2008 and the trade agenda in Geneva has since advanced slowly. Serious
efforts were made to renew the negotiations, but in the end, members
have had to be content with harvesting the low-hanging fruit, such as
trade facilitation and export competition. Although there have been
significant accomplishments, they represent but a small portion of what
was on the table during the DDA negotiations. In addition, negotiated
settlements on the tougher issues, such as market access and domestic
support, have become more difficult to obtain in isolation. The recent
experience at the WTO's Eleventh Ministerial Conference in Buenos Aires
highlights the difficulties of reaching a negotiated settlement on
domestic support in isolation from, say, market access. Progress on
disciplining export restrictions has also been stymied despite near
unanimous agreement that export bans on humanitarian food aid should be
prohibited.
Appellate Body crisis threatens the WTO dispute mechanism. A
landmark achievement of the Uruguay Round, and notably, the Agreement
on Agriculture, was the full inclusion of agriculture in multilateral
rules and disciplines. Since the birth of the WTO, a significant number
of member countries have used the dispute settlement mechanism (DSM)
for resolving the disputes in agriculture. The DSM has played an
important role not only for those parties involved in the disputes, but
also by helping member countries to better understand the WTO rules,
and therefore help guide them in developing domestic policies and trade
policies that are consistent with WTO requirements.
U.S. agriculture has been a major beneficiary of the DSM. Over the
period 1995-2019, the United States has brought 43 individual cases
against WTO members involving an agricultural product; over the same
period, 34 cases were brought against the U.S.. Those numbers have
declined over time, with only 7 disputes initiated within the past 5
years: 4 where the U.S. was the complainant and 3 where it was the
respondent (figure 5). The greatest number of disputes were with WTO
members who have been our largest trading partners (15 disputes with
the EU, 11 disputes with Canada, and 6 with Mexico) although in recent
years, as developing countries have accounted for larger share of
global export and import, they have also accounted for a greater share
of agricultural disputes.
[GRAPHIC] [TIFF OMITTED] T2920.005
Of the 43 cases taken by the U.S. against other WTO members, a
majority (26) of those were settled before going to a panel. Thus the
WTO provides a forum where WTO members can resolve disputes without
resorting to unilateral trade actions, which may ultimately be
destructive and counterproductive. Of the 17 disputes that went to a
panel, the panels agreed with 80 percent of the claims argued by the
U.S. in those disputes. These include recent positive rulings for the
U.S. in cases against China on agricultural subsidies and tariff rate
quota (TRQ) administration.
The United States has also been a respondent in 34 disputes
involving agriculture, 19 of which went to a panel for adjudication. In
those cases, the panels agreed with complainants' claims about 72
percent of the time. Among the more prominent cases include the case
brought by Brazil against U.S. cotton subsidies (DS267) and the
disputes brought by Canada and Mexico against mandatory
country-of-origin labeling (COOL) (DS384 and DS386).
WTO members rely on dispute settlement proceedings to ensure
transparency, clear rules on trade, and a fair system of trade for WTO
member countries. Paralyzing the dispute settlement procedure would be
a real loss to the global trading system. Beyond the immediate halt of
proceedings, failure to make appointments could come at considerable
costs to members' long-term objectives and the stability of the
multilateral trading system. The food system is one critical place
where consequences could land: disputes over food products that
escalate or cause damage to the multilateral system could potentially
have human costs for countries that rely on food trade, exacerbating
hunger and hurting food producers' income opportunities. To avoid such
economic and human costs, it is critical that WTO members find a
resolution to the current Appellate Body crisis.
conclusion
It is easy to be pessimistic about the future trade agenda of the
WTO given the current state of global trade relations and threats of
trade wars. Protectionist pressures have ebbed and flowed throughout
history, however, and it is important to recall that within 4 years of
passage of the Tariff Act of 1930 (more commonly known as the Smoot-
Hawley Tariff Act), the U.S. Congress passed the Reciprocal Trade
Agreements Act of 1934, which in part led to the development of the
GATT and the long period of trade liberalization that has followed to
the present.
The challenges of meeting future food needs will require a
concerted effort from governments to improve the functioning of food
and agricultural markets. The WTO can play an enormous role by reducing
trade-distorting support, improving market access, ending distortions
caused by export restrictions and subsidies, and perhaps most
importantly, continue to provide a forum to which members can bring and
hopefully resolve, trade disputes, rather than engaging in unilateral
trade actions that can quickly escalate trade tensions. In the words of
the Deputy Director General Alan Wolff, the WTO remains ``a place of
hope, for the least developed, for the vulnerable, for the conflict-
affected, for the industrialized, for any country seeking economic
advancement for its people, and that is a category that must include
all.''\4\
---------------------------------------------------------------------------
\4\ Wolff, A. Wm. 2020. ``Trade for peace is more than a slogan, it
is hope for a better future.'' Speech given at a virtual event hosted
by American University, July 17, 2020. Available at: https://
www.wto.org/english/news_e/news20_e/ddgaw_17jul20_e.htm
______
Questions Submitted for the Record to Joseph W. Glauber, Ph.D.
Question Submitted by Hon. Chuck Grassley
Question. Your research has shown that WTO dispute settlement is
very important for our farmers. One of the biggest problems we've faced
is countries using junk science to keep our agricultural products out.
The WTO included landmark disciplines on sanitary and phytosanitary
measures, or SPS. The disciplines require these measures to be based on
science.
Can you tell us about the value of the SPS agreement to our
agricultural industry? Do you think there is room to improve that
agreement?
Answer. The SPS agreement has provided a means by which WTO members
can challenge another member's sanitary and phytosanitary regulations
if they believe those regulations are not science-based. In general,
Since 1995, there have been 49 consultations brought to the WTO
regarding the SPS agreement. The United States has brought 11 disputes
involving the SPS agreement, over half of which were successfully
resolved without going to a panel.
The SPS agreement needs to be modernized, ideally along the lines
of what was agreed to in the TransPacific Partnership agreement and the
USMCA. Those agreements reaffirm the importance of ensuring that
sanitary and phytosanitary measures are based on scientific principals
and that they are transparent. The agreements also provide for a
consultative mechanism that serves to resolve disputes before reaching
a stage where they result in a formal consultation in the WTO Dispute
Settlement Body.
______
Question Submitted by Hon. John Cornyn
Question. State-owned enterprises have emerged in the recent decade
as a significant issue that threatens free and fair trade. It is a new
concept for industrialized goods, but there are existing policies in
place to address the issue of subsidies in places like the agriculture
sector.
The U.S. has not yet defined SOEs in the context of domestic law. I
believe this is something we should explore to help inform the
committee during the WTO reform debate.
Can you discuss the issue of state subsidies leading up to the
WTO's initiation and what WTO restrictions are currently in place as a
result?
Answer. For agriculture, SOEs have been more of a problem in the
area of market access rather than domestic support. Agricultural
producer subsidies are disciplined under the Agreement on Agriculture
domestic support provisions. Those provisions have generally worked
pretty well. Only a handful of agricultural subsidy cases have been
taken to the Dispute Settlement Body. In 2016, The United States
successfully challenged China's domestic support measures for wheat and
rice.
For non-agricultural industrial subsidies, a lot could be learned
by looking at the Agreement on Agriculture. Those disciplines were
established based on research by the OECD and others that classified
support measures as to whether or not they were production and trade
distorting. Criteria were established for what constituted ``minimally
trade-distorting practices.'' If measures did not meet those criteria,
they were classified as trade-distorting and subject to discipline.
Market access has been a problem, particularly in the area of
tariff rate quota (TRQ) administration when quota rights are allocated
to SOEs. Such was the case in the recent WTO dispute brought by the
United States against China over TRQ administration for wheat, corn,
and rice. The WTO panel ruled in favor of the United States last year.
Thus far, China TRQ fill rates for those commodities are above the pace
of previous years and will likely be filled for wheat and corn.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. So far, the U.S. has mainly relied on unilateral tariffs
under section 301 to push for market-oriented reforms to the Chinese
market, but these measures hurt Americans, while not having much effect
on Chinese trade practices. But this is not the only way to try and
encourage China to adopt reforms--the U.S. can also work with key
allies and use the WTO rules to encourage China to adopt reforms.
While the WTO may need reform in some key areas, the fact remains
that it has historically been very successful when dealing with China.
Uncovering China's WTO violations is challenging but it can be done,
and the U.S. can use the WTO to hold China accountable, in particular
in relation to the areas of intellectual property protection, forced
technology transfer, and subsidies.
How can the U.S. better utilize the WTO dispute settlement system
in addressing the challenges with China's non-market trade policies?
For those areas of contention that are not well covered by WTO
rules, such as state-owned enterprises, how can the United States work
with our allies within the WTO to develop new rules?
What are the limits of the WTO in dealing with China, and how can
the U.S. help facilitate reforms to strengthen it?
Answer. I believe it is necessary for the United States to work
multilaterally through the WTO to achieve a solution to these problems.
The United States should use the dispute settlement process and work
with other members to bring a case against China's business practices
and their violations of intellectual property.
In the area of industrial subsidies, much can be learned by looking
at the Agreement on Agriculture. Those disciplines were established
based on research by the OECD and others that classified support
measures as to whether or not they were production and trade
distorting. Criteria were established for what constituted ``minimally
trade distorting practices.'' If measures did not meet those criteria,
they were classified as trade-distorting and subject to discipline.
Question. Maximizing the effectiveness of the WTO through American
engagement and leadership is in the broad national interest as a means
to provide greater economic stability and prosperity. Detractors say
that the WTO system is ``rigged,'' but the fact remains that the United
States has won 85.7 percent of the cases it has initiated before the
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global
trade, and foreign markets are critical to our agriculture,
manufacturing, and service industries. Economists have found that the
U.S. withdrawing from the WTO would lead to diminished trade growth,
costly market and supply-chain disruptions, and the destruction of jobs
and profits, especially in import- and export-dependent U.S.
industries.
Can you speak to the projected effects of withdrawing from the WTO?
Do you believe that the resulting trade barriers from withdrawal
from the WTO would compel some American companies either to downsize or
move offshore?
Answer. I believe withdrawal from the United States would have
devastating consequences for U.S. agriculture. While we enjoy
preferential bilateral trade agreements with a number of important
trading partners most of those reflect mature markets where income
levels are high and population growth is flat or even declining. Many
of the regions with the largest growth potential for U.S. trade over
the next 20 years are in Asia, Africa, and South America. Pulling out
of the WTO would potentially adversely affect trade with those
countries. Moreover, we would lose access to the WTO dispute settlement
mechanism which provides a forum where trade disputes can be
successfully adjudicated. Lastly, the United States needs to take a
leadership role at the WTO to ensure that its direction in future trade
negotiations reflect U.S. interests.
______
Prepared Statement of Thomas R. Graham,
Partner, Cassidy Levy Kent
Chairman Grassley, Ranking Member Wyden, and members of the
committee, thank you for the opportunity to testify today on WTO
reform, which I believe must occur, and must be done well if the WTO is
to continue playing an important role in international trade.
My name is Tom Graham. I was a member of the WTO Appellate Body for
8 years, from late 2011 until last December. I was twice chair of the
Appellate Body, including during the final months of 2019, when the
Appellate Body effectively came to an end. I am currently a partner in
Cassidy Levy Kent, an international trade law firm in Washington and
Ottawa.
I will speak mainly about the need for reform of WTO dispute
settlement, which I know first-hand. In a nutshell, my view is: that
the WTO Appellate Body has strayed far from the rules that U.S.
negotiators helped to write--and that the Congress reviewed and
approved--some 25 years ago; that for 20 years, spanning three
administrations--Republican and Democratic--the United States has
consistently called out the Appellate Body for exceeding its role, and
asked for corrections; that some WTO members, including the European
Union, have not acknowledged or engaged with the seriousness and
bipartisanship of the U.S. critique; and that until they do, and until
basic and dependable reforms are made, there should be no tinkering
with words, no ``restarting selections,'' no ``early harvest'' of AB
reform.
Why do I say that? The difference of views is long and deep, and it
has intensified in recent years as a result of accelerating
globalization and the rise of China as a leading exporter.
The Walker Convergence Principles, which we'll probably discuss,
can be a start, but only a start. They are the low-hanging fruit,
dealing mostly with procedural matters, some in general terms. And they
are just words, as are words of the WTO Dispute Settlement
Understanding that arguably have been ignored or stretched, and words
of Article 17.6(ii) of the Antidumping Agreement, which have been
ignored.
What's needed is a credible demonstration that our major trading
partners understand the depth of the U.S. critique, accept that it is
broadly and deeply held, and on that basis engage in negotiations aimed
at updating the rules and reforming the Appellate Body.
What is also is needed, I believe, is the for United States take a
long view and not be in a hurry to resurrect the Appellate Body. That
would only lead to papering over differences and reverting to the same
problems. It is better to get it right, even if that means a long
period of interim or ad hoc appellate arbitration systems.
Nobel Prize-winning economist Paul Romer said ``a crisis is a
terrible thing to waste.'' Let's not waste this opportunity to learn
from the history of the Appellate Body, and to try to create something
better, no matter how long that takes.
______
Questions Submitted for the Record to Thomas R. Graham
Questions Submitted by Hon. Chuck Grassley
Question. Your experience with the Appellate Body is fairly recent,
having served until December of last year. One troubling thing I have
heard over the years is that the WTO's Secretariat exerted an unusual
amount of control over Appellate Body members. Supposedly, it exerted a
lot of pressure on members to avoid writing separate opinions or
expressing disagreement. That's really troubling if true.
The WTO is a member-driven organization. Members should be in the
driver's seat, not bureaucrats. Moreover, the Appellate Body members
themselves go through a vetting process by members, and are supposed to
have integrity and impartiality under the rules. There's no such
vetting for the Secretariat staff.
Do you agree that the Appellate Body's Secretariat was acting
beyond its mandate, or contributing to the overreach in various
decisions?
Answer. Yes, based on my 8 years as a member of the Appellate Body,
I believe the AB Secretariat consistently acted beyond its proper role
and contributed significantly to overreach and other problems,
including rigid adherence to precedent, exceeding 90 days, long and
unclear reports, and undermining national trade remedy laws.
The reasons are threefold.
First, the prevailing view among some past Appellate Body members
and academics was that the AB was akin to a court of international law,
authorized to interpret broadly and to create a body of international
jurisprudence. The U.S. has consistently opposed that view arguing that
the AB was intended only to help settle particular disputes by
correcting serious errors of panels in applying the texts of the rules.
I think the U.S. view is closer to the text of the WTO Dispute
Settlement Understanding and the negotiating history.
Second, the long-time Director of the AB Secretariat held the
broader view and advocated it frequently. He edited staff papers that
were sent to AB members, and participated actively in meeting in which
AB members decided cases, or wrote decisions.
Third, the structure of the Secretariat enabled over-stepping. The
staff was a separate entity, headed by the Director, who edited staff
papers that went to AB members, and wrote staff evaluations. In effect,
that gave the Director, with the staff of about 15 lawyers, influence
equal or sometimes greater than individual Appellate Body members, who,
by contrast, were part-time, did not live in Geneva, and arrived
shortly before work on cases began.
Efforts by a few AB members to change things were mostly not
successful, for various reasons.
Question. What can we, the Congress, do to make sure Appellate Body
members are sufficiently independent of the Secretariat?
Answer. First, accept that the current standoff on dispute-
settlement is not about words or procedures--it is about the
fundamental nature of the rules and dispute settlement.
Second, remember that the U.S. critique is longstanding,
bipartisan, and legitimate.
Third, consider that the reluctance of major trading partners,
including the European Union, to engage with the depth of the U.S.
critique has been a primary reason for the U.S. blocking of
appointments to the Appellate Body, and that the U.S. blocking is a
reason that talk about dispute settlement reform is occurring.
Accordingly, oppose any early, or separate, fix of the Appellate
Body. Instead, support the U.S. insistence on genuine engagement with
the question of what the WTO appellate entity is, what it is supposed
to do, and whether it is necessary. And support the U.S. position of
not being in a hurry. The discussion of dispute settlement reform needs
to occur alongside discussions of WTO reform, no matter how long that
takes.
Fourth, if, in the future, as a result of reform discussions, there
is to be a staff director for an appellate entity, confine the Staff
Director's role to administration, and prohibit them from engaging in
the substance of cases.
Fifth, if an appellate entity results from future reform
discussions, structure it so that members of the appellate entity have
their own staff assistant(s), either by permanent assignment, or by
choice case-by-case from a pool of staff. That is important to combat
the problem of ``group-think,'' and encourage sharper views, clearer
reports, and less reliance on precedent.
Question. The Appellate Body has received a lot of attention about
its shortcomings. However, I'm not sure the panel process is completely
perfect. The initial panel process takes much longer than anyone
anticipated. Compliance panels have an important task of deciding
disputes in which a party has already found they've breached their WTO
obligations. The rules provide those panels should issue decisions in
90 days, but they almost never do.
Do you think we need to look at reforming the panel process?
Answer. Yes, there needs to be reform of the entire dispute
settlement system, including panels, in order to address basic
disagreements over what that system was intended to be. If there is to
be an appellate entity, then basic, systemic reform of it also would
improve the operation of panels. For example, de-emphasizing appellate
precedents would simplify panels' analyses and reports. Narrower and
more strictly textual appellate reports would reduce the incentive for
WTO members to file speculative cases and attempts to get by litigation
what they could not get by negotiation. Similarly, it would reduce the
incentive for WTO litigants to make an excessive number of claims.
______
Questions Submitted by Hon. John Cornyn
Question. State-owned enterprises have emerged in the recent decade
as a significant issue that threatens free and fair trade. It is a new
concept for industrialized goods, but there are existing policies in
place to address the issue of subsidies in places like the agriculture
sector.
The U.S. has not yet defined SOEs in the context of domestic law. I
believe this is something we should explore to help inform the
committee during the WTO reform debate.
What can be done to rein in the practice of SOEs at the WTO's
Appellate Body? How has the Appellate Body interpreted policies related
to state-subsidies since the WTO's creation?
Answer. I would like to start with the second part of your second
question: How has the Appellate Body interpreted policies related to
state-subsidies since the WTO's creation?
The answer to this question is telling and bears on broader reform.
The WTO rules do not use the term ``state-owned enterprises,'' or
``SOEs.'' Instead, countervailable SOEs are included in the term
``public bodies'': governments may impose countervailing duties on
subsidies conferred by ``a government or public body.'' ``Public body''
should be a valuable concept--because it is broader than ``state-owned
enterprise,'' extending to any entity that confers a benefit on behalf,
or at the behest, of a government, regardless of the degree of
government ownership.
But the Appellate Body went seriously wrong on this subject. It's
first decision required a public body to ``exercise, possess, or [be]
vested with government authority,'' leading many to wonder whether, for
example, China could not be held accountable for subsidies conveyed
through Chinese companies unless those companies wrote regulations and
operated like, say, Amtrack.
That led to WTO litigators making broad claims about what
constituted exercising, possessing, or being vested with government
authority, in efforts to make reality fit the rigid standard. In later
cases the AB played along, adding many other criteria, such as ``the
legal and economic environment prevailing in the country,'' while
keeping the ``exercises . . . government authority'' criterion, thus
adding layers to the confusion.
Finally, the United States expressly asked the AB to clarify the
standard in an appeal by China challenging the Commerce Department's
assessment of countervailing duties against Chinese imports, for
benefits conferred by a Chinese ``public body.'' And in a 2-1 decision,
the majority of AB members hearing the case considered clarification
unnecessary and declined to amend the existing standard.
In an anonymous dissent, one AB member called the original
``exercises . . . government authority'' standard ``a mistake . . .
that has sown confusion as participants and the Appellate Body have
struggled to show how situational criteria fit with a rigid and
limiting phrase.'' The dissenter said it is not necessary to show that
a public body ``exercises, possesses, or is vested with government
authority,'' and asked that future panels and AB members consider this
proposed standard in comparison with, or instead of, the previous
standard. The report containing these two views of the ``public body''
standard, identified as ``DS 437 Compliance,'' was released July 26,
2019, and is publicly available.
Second part of question: What can be done to rein in the practice
of SOEs at the WTO's Appellate Body?
First, make sure that the ``precedent'' described above, and all
other past precedents, are nullified and that any reformed dispute
settlement system starts over with a clean slate.
Second, obtain from the WTO General Council an interpretation of
``public body'' that omits the ``exercises, possesses, or vested with''
criterion and that leaves considerable discretion to national
investigating authorities to determine on a case-by-case basis whether
an entity is a ``public body,'' provided the determination results from
an opportunity for differing views to be heard, and is supported by
evidence and explained.
Third, in broader WTO reform, carve out trade remedies
(investigations of dumping or subsidization, and ``safeguards'' meaning
sudden injurious increases in imports) for separate procedures. And
require that the adjudicators in those separate procedures have
significant familiarity with the subject of trade remedies, beyond
academic familiarity.
It may not be necessary to change the WTO rules on this subject,
which are clear enough if correctly interpreted and applied.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. So far, the U.S. has mainly relied on unilateral tariffs
under section 301 to push for market-oriented reforms to the Chinese
market, but these measures hurt Americans, while not having much effect
on Chinese trade practices. But this is not the only way to try and
encourage China to adopt reforms--the U.S. can also work with key
allies and use the WTO rules to encourage China to adopt reforms.
While the WTO may need reform in some key areas, the fact remains
that it has historically been very successful when dealing with China.
Uncovering China's WTO violations is challenging but it can be done,
and the U.S. can use the WTO to hold China accountable, in particular
in relation to the areas of intellectual property protection, forced
technology transfer, and subsidies.
How can the U.S. better utilize the WTO dispute settlement system
in addressing the challenges with China's non-market trade policies?
For those areas of contention that are not well covered by WTO
rules, such as state-owned enterprises, how can the United States work
with our allies within the WTO to develop new rules?
What are the limits of the WTO in dealing with China, and how can
the U.S. help facilitate reforms to strengthen it?
Answer. Overall, the U.S. should be explicit about the fact that
non-market economies, such as China, are a difficult fit in the GATT/
WTO system, which was designed as a framework for market competition.
Question. How can the U.S. better utilize the WTO dispute
settlement system in addressing the challenges with China's non-market
trade policies?
Answer. A series of Appellate Body decisions--on Chinese pricing,
``public bodies,'' and U.S. conduct of verification audits in unfair
trade cases--hinder investigations of Chinese imports by the U.S.
Commerce Department and authorities in other market economy countries.
At a minimum, nullify the status of those cases as precedents.
Beyond that, I do not think it will be possible to address
adequately the competitive challenges of China within the WTO dispute
settlement system unless and until the WTO dispute settlement system is
thoroughly reformed, together with reforms of the WTO itself.
Question. For those areas of contention that are not well covered
by WTO rules, such as state-owned enterprises, how can the United
States work with our allies within the WTO to develop new rules?
Answer. The rules on state-owned enterprises may be sufficient if
they are applied and adjudicated correctly. The problem is that the AB
has interpreted those rules in ways that have reduced their
effectiveness. The existing rules permit the national authorities to
hold SOEs responsible for countervailable subsidies; they permit
national authorities to disregard distorted Chinese home market prices
in calculating dumping or subsidization; and they permit national
authorities to ask hard questions and conduct probing audits of
information provided by exporters from non-market economies.
Nullification of the precedential value of the AB decisions
weakening those rules would be a start.
I also said, in response to a question by Senator Cornyn, that the
WTO General Council might use its power to make authoritative
interpretations of the rules. Where necessary, in addition to
nullifying harmful AB precedents, the U.S. could seek to join with
allies to secure General Council interpretations making clear the
intended operation of the trade remedy rules as they apply to
competition from non-market economies. And, if and when basic reform
negotiations occur, the U.S. should enlist others to address the
problem of non-market economies through clarifications of the rules, if
necessary.
Question. How can the U.S. better utilize the WTO dispute
settlement system in addressing the challenges with China's non-market
trade policies?
Answer. This goes to the heart of what is at stake in WTO reform.
Over 15-plus years and three administrations--Republican and
Democratic--the United States has been consistent and bipartisan in its
critique of the Appellate Body. That critique, in essence, is that AB
exceeded the modest role that was intended for it and written into the
WTO Dispute Settlement Understanding, and assumed for itself the role
of a court of international law, and that, in doing so, the AB weakened
trade remedy measures in ways not intended by WTO negotiators.
Whether one agrees with it or not, the U.S. critique is respectable
as a matter of text, logic, and negotiating history. Former (non-U.S.)
negotiators of WTO trade remedies agreements have been outspoken in
expressing views similar to those of the U.S.\1\ Some WTO-member
government representatives and many knowledgeable persons within the
WTO building have quietly agreed with much of the U.S. critique. But
others, including the European Union, many academics, and leadership of
the AB Secretariat, have dismissed and disregarded the U.S. critique,
apparently content with the AB as a more broadly empowered
international court.
---------------------------------------------------------------------------
\1\ See Cartland, DePayre, Woznowski, ``Is Something Going Wrong in
WTO Dispute Settlement?'', Vol. 46 Journal of World Trade Law (2012).
These differences have become more acute with the rise of
competition from China and others with varying degrees of non-market
---------------------------------------------------------------------------
policies.
In my view, the United States should not engage in negotiations
about reform--of the dispute settlement system or the WTO--until our
counterparts are credibly willing to show understanding of the depth of
the U.S. critique and to engage with it.
And that engagement/negotiation should cover both WTO and dispute
settlement reform, without considering dispute settlement reform to be
an easier matter that can be resolved earlier. An agreement that did
not to come to grips with basic differences would risk only papering
over differences that would soon reemerge.
Question. One area of concern that many have with the WTO is the
current treatment of ``developing country status,'' or ``special and
differential treatment.'' SDT was meant to help the poorest WTO members
meet their obligations to the fullest extent possible, and gives
``developing'' countries more time to implement obligations,
preferential tariff schemes, and technical support from ``developed''
countries. However, nowhere in the WTO rules does it define what a
``developing country'' is, and as a result, members practice self-
declaration, whereby they alone decide their development status.
Thus, we are seeing that rapidly growing countries with significant
global reach lay claim to these special rights, due to members' ability
to ``self-declare'' their developing country status. This has led to a
situation where more-advanced countries receive similar treatment to
those that are much poorer, undermining the initial rationale for SDT
to help those countries in most need with the transition to full
compliance. Except for least-developed countries, SDT also does not
differentiate between levels of development among developing countries,
and as a result, the poorest countries are made worse off, while those
that are economically better off receive a ``free ride'' from the rest
of the multilateral trading system.
Do you agree that the WTO should work to adopt a new evidence-
based, case-by-case approach to SDT to ensure both that the concerns of
the poorest countries are addressed and that advanced developing
countries carry their weight in the organization?
Answer. Yes, I think the issue of SDT status is current and
important. I agree that the WTO should work to adopt objective criteria
that would enable members governments to decide on a case-by-case
basis, in a way that respected the concerns of the least developed
members, and differentiated those members from newly developed, or
perhaps advanced developing members.
This would be an appropriate subject for WTO reform negotiations.
I also consider that until there are such criteria, the U.S. (and
others) should be willing, where appropriate, to ``graduate'' WTO
members from special and differential treatment. Such actions, if
challenged, could usefully be tested in a reformed dispute settlement
process.
Question. Advocates of reforming the SDT have suggested looking at
factors ranging from a country's economic measures (like economic
production or per-capita income), social measures (human development
index), or trade indicators (export levels, high-technology trade) to
define whether it is ``developed.'' How can we best define ``developing
country''?
Answer. I don't claim any special knowledge of how these criteria
and other factors should be used, but I'll say what I can.
As you noted in your previous question, there are differing levels
of ``developing countries.'' It would seem feasible to apply some
combination of the criteria you mentioned to identify the ``least
developed'' category. From there it gets more complicated. Can a
country be developed in some ways, and not in others, considering the
mobility of production and technology? When does a developing country
graduate?
This may get back to your previous question: should there be
objective, evidence-based criteria, both for initial designation as
``developing,'' and for graduation from developing status? Having such
criteria may be a way to deal with the current problem of self-
designation without a clear way for others to disagree. Also, see my
suggestion that, in the absence of objective criteria, the U.S. (and
others), in appropriate circumstances, consider unilaterally regarding
some countries as developed, leaving it to a reformed dispute
settlement system to decide.
Question. Maximizing the effectiveness of the WTO through American
engagement and leadership is in the broad national interest as a means
to provide greater economic stability and prosperity. Detractors say
that the WTO system is ``rigged,'' but the fact remains that the United
States has won 85.7 percent of the cases it has initiated before the
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global
trade, and foreign markets are critical to our agriculture,
manufacturing, and service industries. Economists have found that the
U.S. withdrawing from the WTO would lead to diminished trade growth,
costly market and supply-chain disruptions, and the destruction of jobs
and profits, especially in import- and export-dependent U.S.
industries.
Can you speak to the projected effects of withdrawing from the WTO?
Answer. First, I don't think the U.S. should withdraw from the WTO.
I also disagree with those who believe that Ambassador Lighthizer's
goal is to withdraw from the WTO.
Instead, I think the U.S. has been determined to force other WTO
members to engage with deep reform of WTO dispute settlement, and was
willing to bring the Appellate Body to a halt absent that engagement.
That is not the same as intending to leave the WTO.
The effects of withdrawing from the WTO--without any substitute--
might be similar to what you suggest. But would there be no substitute?
Might there be a large plurilateral agreement among market economies,
if most members of the current WTO could agree on reforms taking into
account non-market competition, and some non-market economy members
could not? (That idea was floated publicly recently by a highly
respected former EU trade official.)
In short, I don't think the U.S. is going to withdraw from the WTO.
But if it did, we shouldn't assume that nothing would take its place.
Question. Do you believe that the resulting trade barriers from
withdrawal from the WTO would compel some American companies either to
downsize or move offshore?
Answer. There would possibly be a period of business and trade
chaos, unless a ``substitute'' were quickly put into place. That could
have the effects on American companies that you describe. But I don't
think the U.S. is going to withdraw from the WTO.
______
Questions Submitted by Hon. Maria Cantwell
Question. The Boeing-Airbus cases at the World Trade Organization
took 16 years.
The WTO found that Europe provided illegal subsidies for the
development of the A350 and the A380. Even after the cases ended, there
are still concerns Europe is providing subsidies to commercial
aircraft.
As a result of these cases, the WTO authorized and the U.S. imposed
tariffs on a range of European products from whiskey to European
aircraft. Europe is preparing to impose tariffs on U.S. products as a
result of its case.
Recently, Airbus agreed to pay higher interest rates on the
government loans it received to develop the A350. However, it remains
to be seen if the dispute will now be considered settled or rounds of
tariffs will be imposed.
Clearly we must make sure that the Appellate Body is fully
functional and has a quorum. But why does the WTO dispute process take
such a long time? What reforms are needed to get disputes resolved more
quickly? How can the WTO develop an expedited process?
Answer. I think all parts of your first question--restarting the
appellate process, why disputes take so long, reforms to speed it up,
and how to develop an expedited process--are interrelated. So, I will
try to respond to them together.
In my view, WTO members need to agree on basic reforms if an
appellate entity is to be recreated, and if they cannot agree, and it
can't be recreated, that would not be a disaster. Other, simpler forms
of dispute settlement could take its place. To restart the Appellate
Body, as it was, too quickly, without dealing with its basic problems,
would only lead to the same flaws that caused its demise.
And that leads to your questions about lengthy disputes and
expediting the process. The WTO Dispute Settlement Agreement says the
following, with respect to the timing of panel reports, in Article 8,
paragraphs 8 and 9:
. . . the period in which the panel shall conduct its
examination, from the date that the composition and terms of
reference of the panel have been agreed upon until the date the
final report is issued to the parties to the dispute, shall, as
a general rule, not exceed six months. In cases of urgency,
including those relating to perishable goods, the panel shall
aim to issue its report to the parties to the dispute within
three months. . . . In no case should the period from the
establishment of the panel to the circulation of the report to
the Members exceed nine months. (emphasis added)
And with respect to Appellate Body reports, Article 17.5 of the DSU
says:
As a general rule, the proceedings shall not exceed 60 days
from the date a party to the dispute formally notifies its
decision to appeal to the date the Appellate Body circulates
its report. . . . In no case shall the proceedings exceed 90
days. (emphasis added)
These are stated as hard deadlines, with no qualifications. There
is a reason the deadlines are short: they signify the limited nature of
review and reports that are expected; that is, precise issues answered
crisply.
My view is that disputes take so long because panels and the
Appellate Body have allowed them to do so, tolerating broader disputes,
more numerous issues, and longer submissions than were foreseen when
the WTO was created.
It is often said that the deadline for AB reports is 90 days. In
fact, as the text above shows, the DSU calls for appellate reports to
be issued in 60 days, and ``in no case'' more than 90 days. It is hard
to miss the relevance of these deadlines to the nature of appellate
review that was intended by the negotiators.
To summarize: reforming the dispute settlement process to return it
to the limited role that is expressed in the DSU would itself result in
faster, more concise decisions.
Question. What reforms are needed to ensure that countries comply
with final WTO rulings and end prohibited trade practices? What tools
can countries use to get countries to come into compliance with WTO
decisions and negotiate solutions?
How should we be working with our allies and like-minded countries
to seek these reforms?
Answer. Overall, the record of compliance with final WTO rulings
has been good. More recently, compliance is becoming more questionable.
Legitimacy, in the form of respect for WTO dispute settlement
decisions, is an important factor in securing compliance. Currently,
that respect is being eroded by deep differences among WTO members
about what the dispute settlement system is supposed to be: a limited
means of resolving disputes according to the texts of agreements, or a
broader court for creating a body of international law precedents. I
believe negotiations that recognize, address, and deal with those
differences will be needed in order to restore the legitimacy that
helps to ensure compliance.
And I believe we should continue to press our allies to acknowledge
the deep differences, and to engage in those negotiations.
______
Prepared Statement of Hon. Chuck Grassley,
a U.S. Senator From Iowa
Good morning. The committee will come to order. I want to welcome
our witnesses. Today, we're fortunate to have some very smart people
who can provide insights on making an important institution--the World
Trade Organization, or WTO--work again.
When the WTO works right, Americans benefit--plain and simple. For
example, Americans are leaders in innovation and creativity. WTO rules
allow us to reap the rewards of that leadership. When India refused to
provide patent protection for American pharmaceutical and agricultural
chemical products, we took them to the WTO--and won. You often hear
about how important the ``global box office'' is for Hollywood. It's
become lucrative because the WTO requires our trading partners to
provide copyright protection and market access for U.S. films.
Likewise, the WTO is very important for our farmers, who are the
most efficient and productive in the world. If you watch my Cornwatch
feed on Instagram, you'll know that, thanks to technology, corn grown
today is shoulder-high by July 4th, rather than knee-high when I was a
kid. If you're not watching Cornwatch, you need to. Unable to compete
though, some countries try to ban our farm products by falsely claiming
they are dangerous. The WTO marked the first time we had global rules
that took on this form of protectionism by requiring food safety
measures be based on science.
The WTO also ensures that our industrial companies have access to
key resources. When China tried to use its control of rare earth
minerals to pressure its neighbors, the WTO is where we joined with the
EU and Japan to take on China's bullying. Facing WTO retaliation, China
lifted its export restraints.
The WTO has also helped our broader foreign policy goals. Opening
economies means more open societies. One story that needs more
attention is how trade has led to more opportunities for women. I'm
glad that WTO members recognized at the last WTO ministerial to issue a
``Declaration on Trade and Women's Economic Empowerment.'' The WTO
needs to stay on top of that important issue.
These are important successes. But we can't live in the past. From
1947 to 1994, we had eight rounds of multilateral trade negotiations.
That's a major global trade deal every 6 years on average. The WTO is
now 25 years old, but we have yet to see any major outcomes for
liberalizing trade.
The President has said we need dramatic change at the WTO. He's
emphasized to me that other countries' tariffs and barriers are too
high. He's right. No one expected the Uruguay Round to be the last
global trading round. Over the last 2 decades, countries like China and
India got a lot richer, but they've refused to take on any more
responsibilities. In fact, they claim they are entitled to special
treatment in any future negotiations because they are developing
countries. The notion that China and India should get the same
consideration as a country like Cameroon is ridiculous. So I applaud
the President for taking on this imbalance and pushing to make the WTO
relevant.
Today, I want to have a thoughtful discussion about getting the WTO
back on track. To me, that means a couple of things.
First, the WTO needs to be an effective forum for negotiating
agreements again. That means not only concluding the fisheries
negotiations but also new agreements, including an ambitious agreement
on e-commerce. When Congress ratified the WTO agreements, there was no
digital economy. Today, it accounts for nearly $2 trillion of the U.S.
economy. Again, this is an area of U.S. leadership where we need rules
to make sure we get a fair shake from our trading partners.
Second, we have to fix dispute settlement. I absolutely believe
that we need enforceable rules. It's much better to solve our trade
disputes over legal briefs than through tariffs. However, WTO dispute
settlement has been breaking down for years. Fifteen years ago, I
warned at a hearing like this one that the WTO Appellate Body wasn't
enforcing rules, it was legislating new ones. I don't like that history
proved me right.
The WTO's Appellate Body ignored clearly written rules like
finishing cases in 90 days. Cases that should have taken months dragged
on for years, frustrating our ability to get timely relief. At the same
time, the Appellate Body started writing new rules that impinged on
U.S. sovereignty. For example, the Appellate Body has made it harder to
use labeling to keep our consumers informed about the country of origin
of their meat, or whether their tuna was harvested without hurting
dolphins. Of particular concern, the Appellate Body has also made it
much harder to use trade remedy measures at a time we need them more
than ever to confront China's state capitalism.
I appreciate that what I am seeking is hard: getting 164 countries
to agree to a freer and fairer trading system. But I don't appreciate
embracing protectionism as the alternative, because it can be extremely
harmful in the long run. From 1929 to 1933, governments around the
world raised barriers to trade--including our own, with the disastrous
Smoot-Hawley tariff. Two-thirds of world trade was wiped out, and the
Great Depression became much worse. World War II followed.
We cannot repeat those mistakes. We're going to continue to do what
we have been doing since winning World War II: lead. U.S. leadership
will require Congress to step up and fulfill our constitutional role in
setting trade policy. Just as Congress set the objectives for
negotiating the WTO agreements and approving those agreements, we are
working now to secure an ambitious reform agenda that will make this
institution fit for global challenges. That's why I am glad members are
considering and debating solutions, including Senators Portman and
Cardin, who have introduced a resolution that has concrete proposals to
reform the WTO. It has never been more important than it is today to
ensure the WTO is equipped to take on the global challenges we face
collectively today.
______
Prepared Statement of Jennifer A. Hillman, Senior Fellow for Trade and
International Political Economy, Council on Foreign Relations; and
Professor, Georgetown University Law Center
the united states needs a reformed wto now
The World Trade Organization (WTO) and with it the rules-based
trading system is in deep trouble. In December 2020, the United States'
blockage of appointments to fill vacancies on the WTO's Appellate Body
left it without a quorum to decide any new cases, opening the door to
countries avoiding compliance with rulings they do not like or find
difficult to implement. Despite multiple calls for swift action, the
WTO has not been able to reach an agreement to curb fishery subsidies
that are contributing to depleting the world's supply of fish, or to
write rules of the road for e-commerce and digital trade. Nor has the
WTO been able to adopt new rules to address growing concerns over
China's unfair trade practices ranging from intellectual property theft
to forcing transfers of technology, or to extensive use of subsidies
and state-owned enterprises (SOEs) in an economy increasingly dominated
by the Chinese Communist Party. Also left undone are reforms to the
operations of the WTO itself.
Many of these problems were slated, perhaps optimistically, for
resolution at its bi-annual ministerial meeting that was to have taken
place in June 2020 in Kazakhstan but has been indefinitely postponed in
the wake of the coronavirus pandemic. On May 14th, the Director General
of WTO, Roberto Azevedo, announced he would be leaving his post
prematurely at the end August 2020, leaving the WTO with the additional
task of quickly selecting a new leader. As one of the candidates to
fill DG Azevedo's shoes, Dr. Ngozi Okonjo-Iwaela, put it, ``Many people
regard [the WTO] as an ineffective policeman of an outdated rulebook
that is unsuited for the challenges of the 21st-century global
economy.''\1\
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\1\ ``Reviving the WTO,'' by Ngozi Okonjo-Iwaela, Project
Syndicate; June 22, 2020, https://www.project-syndicate.org/commentary/
reviving-the-world-trade-organization-by-ngozi-okonjo-iweala-2020-
06?barrier=accesspaylog.
Yet now is the time when the United States and the world need the
WTO more than ever. As the coronavirus wreaks havoc on the economies of
virtually every country in the world, placing great strains on supply
chains and raising doubts about whether countries can rely on their
trading partners when they need them most, the global community must
count on the system working as it should. Moreover, when a vaccine or
treatment drugs for the coronavirus are developed, the lessons WTO
members learned from the failures to efficiently and effectively
distribute HIV/AIDS drugs 3 decades ago will be important reminders of
the essential need for cooperation and use of WTO rules to ensure a
quick and fair distribution of COVID-19 vaccines and medicines. With
all of the uncertainty created by the coronavirus, the stability and
predictability of the basic trading rules provided by the WTO are a
critical port in the storm.
I. WTO Reform Needs to Restore Balance to the System, Starting With
its Dispute Settlement System
At its core, the WTO has three main pillars: (1) a negotiating
pillar allowing the WTO to serve as the forum for the creation of new
trade rules and trade liberalization accords applicable to its 164
members; (2) an executive function, with the WTO serving as a central
clearinghouse for tariff schedules, services commitments, non-tariff
measures and subsidy notifications, along with supporting the important
work of WTO committees; and (3) a dispute settlement arm designed to
resolve disagreements over whether countries have lived up to their
trade commitments. The collective work of the three has allowed the WTO
to deliver on its promises of creating a rules-based global trading
system with broadly declining barriers to trade in goods and services,
while its dispute settlement system has held members accountable to
follow those rules. This system has contributed immensely to global
economic growth over the last 7 decades, improving living standards for
billions of people. The eight rounds of trade negotiations since the
WTO's precursor, the General Agreement on Tariffs and Trade (GATT) came
into being have helped increase global trade more than 40-fold, from
$58 billion in 1948 to more than $20 trillion today. Moreover, rules-
based global trade has helped underpin peace and security, because
trading partners are more likely to resolve differences through
negotiations than through armed conflict.
But the system is now badly out of balance, as the negotiating
process has broken down, unable to reach any major agreements other
than the Trade Facilitation Agreement since the WTO was created in
1995. The executive function has been hampered by the failure of many
countries to provide timely notifications of their measures and by its
limited power in WTO's member-driven system. The dispute settlement
system, until its Appellate Body was upended in December 2020, was
perceived to be very strong--with nearly 600 requests for consultations
to resolve differences filed to date and countries throughout the world
choosing to resolve their disputes at the WTO rather than through free-
trade agreement or bilateral dispute settlement mechanisms. But that
strength has contributed to the lack of balance in the system, with
USTR's Ambassador Lighthizer noting ``the WTO is losing its essential
focus on negotiation and becoming a litigation-centered organization.
Too often members seem to believe they can gain concessions through
lawsuits that they could never get at the negotiating table.''\2\
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\2\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2017/december/opening-plenary-statement-ustr.
The need and the desire for WTO reform is now well documented.\3\
But I believe the reform of the WTO needs to start with getting its
dispute settlement system back on track. Why? Because the absence of a
binding dispute settlement system means: (a) countries will be less
willing to make new commitments, including commitments to reform other
aspects of the WTO, if they do not believe there is a functioning
dispute settlement system holding countries to those commitments; (b)
countries take their existing obligations less seriously if there is no
serious mechanism for enforcing them; (c) the United States and like-
minded members of the WTO lose considerable leverage over China given
the need for a multilateral approach to achieve structural and systemic
changes in China; (d) protectionism will continue to grow without a
strong system to hold it in check; (e) the growing rift with the
European Union over digital trade-related issues such as data privacy,
digital services taxes, cross-border data flows, and competition/
antitrust disciplines on large high-tech companies will be harder to
resolve; and (f) a negative impression of the functionality of WTO
prevails, creating a drag on momentum for a broader reform agenda.
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\3\ ``We reaffirm our support for the necessary reform of the World
Trade Organization (WTO) to improve its functions.'' G20 Leaders
Declaration, G20 Summit, Osaka Japan, June 29, 2019; H. Res. 746, a
Resolution to Support and Reform the World Trade Organization (WTO); S.
Res. 651 (Portman-Cardin), Sense of Senate finding value and usefulness
in WTO, but noting significant reforms at the WTO are needed.
---------------------------------------------------------------------------
II. The United States Has Gained Far More Than it Has Lost From the
WTO and its Dispute Settlement System
When the WTO was created in 1995, a top goal for the United States
was a binding dispute settlement system to replace the previous GATT
process, which could be easily circumvented, thereby allowing countries
to dodge their trade commitments. What was created in its stead was a
two-stage process to determine whether a country has violated the rules
or otherwise undermined the bargain between countries. At the first
stage, an ad-hoc panel assesses the facts and applicable WTO rules to
determine whether a violation has occurred. The parties can then
request that the panel's determination be reviewed by the Appellate
Body, which has the power to either uphold or overturn the decision.
The Appellate Body is composed of seven people, with a minimum of three
required to rule on an appeal. Each member serves a 4-year term and can
be reappointed once. The members serve on a part-time basis and are
aided in their work by an increasingly powerful staff of full-time
lawyers in its Secretariat.
The United States was the strongest proponent of creating an
Appellate Body. Since the WTO rules provide for a nearly automatic
adoption of panel reports, the United States sought a process to
overturn any erroneous panel decisions before they became binding
obligations. While appeals were expected to be rare and limited to
narrow questions of law, access to the Appellate Body was considered
essential both to ensure that countries could challenge decisions by ad
hoc panels that they believed were wrongly made and to bring a measure
of consistency across disputes over similar legal texts.
The WTO dispute settlement system succeeded initially. An
increasing number of WTO members used it. Compliance with its
decisions, while not perfect, was considered good. For its part, the
United States filed more complaints than any other country, prevailing
in 91 percent of these cases. However, the expectations that appeals
would be rare and narrow proved to be wrong. Nearly 70 percent of panel
reports have been appealed and the average appeal can raise a dozen or
more claims, many of them going far beyond narrow legal questions.
More than a decade ago, the U.S. began raising concerns that
extended far beyond dashed expectations to cover a range a both
procedural and substantive concerns. In February 2020, the Trump
administration released a report cataloguing them in significant
detail. But there are two major flaws with that report. First, it
ignores the more than 100 hundred cases the United States won,
providing greater market access for American exporters. Second, it
provides no ideas or plan to fix the problems it carefully spells
out.\4\
---------------------------------------------------------------------------
\4\ United States Trade Representative, ``Report on the Appellate
Body of the World Trade Organization.'' February 2020, https://
geneva.usmission.gov/wp-content/uploads/sites/290/AB-
Report_02.11.20.pdf.
The U.S. wins from the WTO dispute settlement system have been
considerable and must be kept in mind when assessing the United States'
decision to strike down the Appellate Body. These victories for U.S.
---------------------------------------------------------------------------
exporters are set forth in Annex A to this statement and include:
In 1999, the United States challenged certain Indian
restrictions on imports of auto parts. The panel determined, among
other things, that India's measures illegally created a disincentive to
import certain auto parts in favor of Indian products. U.S. exports of
auto parts to India when the case was filed were $840,000; their 2019
total is $21.9 million. (DS175)
In 2002, the United States challenged two restrictions on the
sale and transport of wheat in Canada. A WTO panel found that Canada's
laws gave an unfair advantage to Canadian versus American wheat. In
2005, Canada amended its rules to comply with the WTO ruling. U.S.
exports of grain and wheat to Canada rose from $3.57 million when the
case was filed to $41.5 million in 2019. (DS 276)
In 2003, the United States challenged Mexico's decision to
impose anti-
dumping duties on U.S. long-grain rice and beef. The panel found that
Mexico's anti-dumping measures violated the requirements of the WTO's
Agreement on Anti-Dumping. U.S. exports at the time the case was filed
were $13 million (long-grain rice) and $581 million (beef). After
compliance with the ruling, U.S. exports rose in 2019 to $36.3 million
(long-grain rice) and $744 million (beef). (DS 295)
In 2006, the United States successfully challenged China's
tariffs on U.S. auto parts, contending that China's 25-percent tariffs
on finished autos was being illegally applied to auto parts, for which
China's tariff was 10 percent. U.S. exports of auto parts to China when
the case was filed totaled $532 million; in 2019 they had risen to
$1.52 billion. (DS 342)
In 2007, the United States challenged India's imposition of
additional duties on, among other items, wine and distilled spirits.
The Appellate Body found that the additional duties were in excess of
India's commitments and must be removed. U.S. exports of wine and
distilled spirits to India were $2.5 million in 2007; in 2019, they had
risen to $7.5 million. (DS 360)
In 2010, the United States challenged Philippine taxes on
distilled spirits, which were found to discriminate against imported
spirits. U.S. exports were $16.3 million in 2010 but have risen in 2019
to $108.2 million. (DS 403)
In 2016, the United States challenged China's administration
of tariff-rate quotas (TRQs) on wheat, rice, and corn. The Panel ruled
that China's TRQs did not meet the WTO requirements of transparency,
predictability and fairness and that China's practice inhibited the
TRQs from being fully utilized. While it is too early to know the exact
trade effects of the ruling. USDA estimates that if China's TRQs had
been fully used, it would have imported as much as $3.5 billion in
corn, wheat and rice in 2015 alone. (DS 517)
III. The United States Should Seek to Reform Rather Than Destroy the
Appellate Body
Ever since May 2017 when the United States began blocking any
process to appoint new members to the Appellate Body, our trading
partners have been asking the question: is the U.S. goal to reform the
Appellate Body or to destroy it? With his testimony to the Ways and
Means Committee on June 17th, Ambassador Lighthizer gave the answer:
for the Trump administration, the goal is to kill the Appellate
Body.\5\ I do not believe that decision is in the United States'
interest or that it is a decision that should be left entirely to the
U.S. Trade Representative to make, particularly given the clear
expressions of support for a reformed Appellate Body from members of
Congress.\6\
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\5\ Inside U.S. Trade, June 17, 2020. USTR: If WTO Appellate Body
never comes back, ``that would be fine.'' Ambassador Lighthizer: ``I
don't feel any compulsion to have [the Appellate Body] ever come back
into effect.'' See also, https://waysandmeans.house.gov/legislation/
hearings/2020-trade-policy-agenda, AB remarks at 2:28:40-2:30:40.
\6\ H. Res. 746, Resolution to Support and Reform the World Trade
Organization (WTO); S. Res. 651 (Portman-Cardin), Sense of Senate.
First, I believe that the United States won more than it lost from
having a binding dispute settlement system and that the concerns that
the United States has with the Appellate Body can be fixed. This view
is shared by a wide variety of those in the business and agriculture
communities in the United States and by our trading partners. Attached
as Annex B to this testimony are letters and statements from some of
---------------------------------------------------------------------------
those constituencies expressing support for a reformed Appellate Body.
Second, failure to come forward with any plan to fix the system
risks squandering the leverage created by paralyzing the Appellate
Body. The United States has now garnered the attention of the world. An
entire process, led by New Zealand's Ambassador and Permanent
Representative to the WTO, David Walker, was created at the WTO to
address U.S. concerns. Numerous outside groups, including, for example,
the Ottawa Group, led by Canada and made up of 12 other WTO members,
such as the EU, Australia, Brazil, Japan, Mexico, Korea and others,
have met regularly to devise Appellate Body reforms. So far, the United
States has not been willing to indicate what reforms, if any, would be
acceptable and Ambassador Lighthizer's recent testimony suggests that
none would be. American refusal to engage in the process risks branding
the United States' concerns as illegitimate and an attempt to destroy
not just the Appellate Body, but the WTO itself. Moreover, perceived
United States intransigence on Appellate Body reform makes it less
likely that its proposals in others areas, including its plan to create
specific criteria for countries to qualify as ``developing'' in order
to be eligible for special and differential treatment \7\ or its
proposal to put teeth into the reporting requirements for subsidies and
other notifications,\8\ will receive the attention they deserve given
the lack of trust created by the U.S. approach to the Appellate Body.
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\7\ WT/GC/W.764/Rev. 1, November 25, 2019.
\8\ JOB/GC/204/Rev. 2, June 27, 2019.
Third, destroying the Appellate Body presumes that the United
States will fare better in a system based on power and a willingness to
retaliate rather than a rules-based system. For me, this is a dangerous
road to travel. It is premised on a belief that the United States will
always come out ahead because it can impose unilateral tariffs on
countries that do not comply with adverse rulings but presumes other
countries will not do the same to the United States. Yet we have seen a
wide range of countries retaliate against the United States' unilateral
tariffs on steel and aluminum, while China has not hesitated to apply
tit-for-tat tariffs to American exports in response to our section 301
duties. Most recently, China has taken a page from the American book in
applying a non-market economy methodology for calculating anti-dumping
duties to U.S. exports of n-propanol in light of what China claims are
substantial subsidies to U.S. oil, gas and coal industries and overall
non-market conditions in the U.S. energy and petrochemical sectors.\9\
If the United States blocks the adoption of panel reports that it does
not wish to comply with, other countries are likely to do the same when
it is the United States that has prevailed.\10\
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\9\ https://ielp.worldtradelaw.net/2020/07/the-us-is-now-a-non-
market-economy-anti-dumping-ruling-by-china.html.
\10\ Already, the United States has blocked the adoption of a panel
report (DS436, U.S.-Carbon Steel India) by filing a notice of appeal.
Under the WTO's Understanding on Dispute Settlement, no action can be
taken with respect to an appeal that is pending (DSU Article 16.4). In
the absence of a quorum of Appellate Body members, an appeal will pend
indefinitely. The U.S. has also indicated that it would not comply with
another decision (DS505 U.S.-Supercalendared Paper) because it was
issued by Appellate Body members whose terms had expired before the
completion of the report.
Finally, failure to engage in the debate to reform the Appellate
Body cedes American leadership to others. Already, the rest of the
world is moving ahead without the United States in the area of dispute
settlement. Twenty-two countries, led by the European Union, have
agreed to use an arbitration process for conducting appeals.\11\ This
Multi-Party Interim Appeal Arbitration Arrangement (MPIA) is based on
the premise that ``a functioning dispute settlement system of the WTO
is of the utmost importance for a rules-based trade system'' and that
``an independent and impartial appeal stage must continue to be one of
its essential features.''\12\ It is quite likely that from the MPIA
will emerge new approaches to handling appeals, but the United States
will not have been a part of that process and will have no ability to
shape its direction. In other areas of WTO reform, the perception that
the United States is not genuinely interested in finding solutions and
that it may well treat other issues as it has treated the Appellate
Body--ultimately taking the view that there is no reform that would be
satisfactory--will allow other WTO members, including China, to seek
the leadership spot historically occupied by the United States. A loss
of perceived leadership could be damaging to U.S. efforts to reach an
agreement on new rules for e-commerce or new disciplines on fishery
subsidies or a new set of rules to address the disruption caused by
China's increasingly Communist Party-dominated, non-market economy.
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\11\ The 22 countries are Australia, Benin, Brazil, Canada, China,
Chile, Colombia, Costa Rica, Ecuador, the European Union, Guatemala,
Hong Kong, Iceland, Mexico, Nicaragua, New Zealand, Norway, Pakistan,
Singapore, Switzerland, Ukraine, and Uruguay.
\12\ https://trade.ec.europa.eu/doclib/docs/2020/april/
tradoc_158731.pdf.
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IV. A Fix for the Appellate Body Is Achievable if We Act Now
The unwillingness of the United States to engage in negotiations to
fix the Appellate Body frustrates many because the problems raised are
ones that can be addressed. A solution that improves the efficiency of
the Appellate Body and responds to U.S. concerns involves adopting a
specific set of operating principles, establishing a new oversight
committee to ensure adherence to those principles, and placing term
limits on the legal staff to bring in fresh thinking and a better
distribution of power between adjudicators and staff.
Adopt an amended version of the Walker principles. New Zealand's
Ambassador and Permanent Representative to the WTO David Walker was
appointed in February 2019 to ``seek workable and agreeable solutions
to improve the functioning of the Appellate Body.'' On November 28,
2019, he set forth specific principles designed to address U.S.
concerns.\13\ The principles require the Appellate Body to make its
decisions in ninety days and for Appellate Body members to leave
promptly at the end of a second term of office, to treat facts as facts
(not subject to appeal), to respect the more deferential standard of
review for antidumping investigations, to address only issues raised by
parties and only to the extent necessary to resolving the dispute at
hand so that its opinions are not advisory, to take previous Appellate
Body or panel reports into account only to the extent they are relevant
and not as precedent, and to ensure that its rulings do not add to the
obligations or take away any rights of the parties as contained in the
WTO rules. Collectively, the Walker principles are designed to make the
Appellate Body more efficient by shortening its time frames and its
reports while doing what the United States has demanded--return to the
rules as written in 1995. Unreserved adoption of the principles by WTO
members would demonstrate widespread member agreement that the
Appellate Body has a limited mandate to resolve only legal questions
raised on appeal in strict accordance with WTO rules.
---------------------------------------------------------------------------
\13\ https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-
DP.aspx?language=E&Cata
logueIdList=257689,255861,253985,253661,253388,251873&CurrentCatalogueId
Index=0&Full
TextHash=371857150&HasEnglishRecord=True&HasFrenchRecord=False&HasSpanis
hRecord=
False.
If the specific provisions of the Walker Principles do not go far
enough for the United States, then stricter versions of them can and
should be negotiated. Two recent papers commissioned by the National
Foreign Trade Council (NFTC), for example, suggest specific ways to
enhance the Walker principles.\14\
---------------------------------------------------------------------------
\14\ https://www.nftc.org/newsflash/
newsflash.asp?Mode=View&articleid=4219&Category=All, https://
www.nftc.org/newsflash/
newsflash.asp?Mode=View&articleid=4228&Category=All.
Establish an oversight committee and audit to ensure compliance. To
build trust that the Appellate Body will adhere to the Walker
principles, the WTO should convene an oversight committee at least once
a year and when requested. The oversight committee could be made up of
the chairs of the lead WTO committees--its General Council, Council for
Trade in Goods, Council for Trade in Services, Council for Trade-
Related Aspects of Intellectual Property Rights, and the Dispute
Settlement Body, with the chair of the Dispute Settlement Body
appointing four additional independent trade-law experts to the
committee to ensure a proper representation of expertise. The
committee's sole task should be to assess whether the Appellate Body
has adhered to the Walker principles, either over the course of a given
year or, when asked, in an individual case. In part, this oversight
committee would help address the primary query raised by the United
States when the Walker principles were presented: why should we believe
the Appellate Body will adhere to them when it did not adhere to the
language of the Dispute Settlement Understanding (DSU)? It will be the
oversight committee's job to ensure that the Walker principles are
followed and that the Appellate Body is called out quickly should it go
---------------------------------------------------------------------------
astray.
Limit the service of members of the Appellate Body Secretariat to
no longer than 8 years--the maximum length of time of an Appellate Body
member. The root cause of many U.S. concerns rests not just with the
Appellate Body members themselves, but with its Secretariat--
particularly the lawyers who work for the Appellate Body as a whole.
Over time, the Secretariat has gained experience and expertise that
often is greater than that of the Appellate Body members, who serve on
a part-time basis for a maximum of 8 years. Secretariat lawyers, on the
other hand, devote all of their time over many years to working on
appeals and are steeped in (and potentially wedded to) past decisions.
Adopting a mobility principle would allow staff rotations throughout
other WTO offices, bring new perspectives to appeals, reduce the
tendency to treat past decisions as precedent, and help restore an
appropriate balance of power between the Appellate Body members and the
Secretariat staff. It would also send a strong signal of an end to
business as usual. If mobility alone were not sufficient, others have
suggested that each Appellate Body member could be appointed a clerk
that would ensure that Appellate Body reports reflect their specific
views and not necessarily the views of the Secretariat as a whole or
its leadership.\15\
---------------------------------------------------------------------------
\15\ See, for example, the NFTC paper, ``Resolving the Appellate
Body Crisis: Proposals on Precedent, Appellate Body Secretariat and the
Role of Adjudicators,'' June 5, 2020, https://www.nftc.org/newsflash/
newsflash.asp?Mode=View&id=236&articleid=4228&category=All.
These reforms would make the Appellate Body more efficient while
addressing U.S. concerns. For the United States, it is critical that
the Appellate Body respect the current language of the WTO's Dispute
Settlement Understanding. The Walker principles require just that. But
the United States needs assurance that the mindset of the Appellate
Body has been changed and that, this time around, the rules will be
respected. The creation of an oversight process ensures that the
Appellate Body will be judged on its consistency with the Walker
principles, while injecting an additional measure of political
oversight over the functioning of the Appellate Body. Staff rotation
brings fresh thinking along with a renewed focus on completing appeals
in accordance with the needs of WTO members.
V. Appellate Body Reform as Momentum for Overall Reforms of WTO
While the United States has refused to negotiate amendments to the
Appellate Body, it has been leading the charge on two other
institutional reforms: (1) the ability of countries to self-declare
themselves to be ``developing countries'' eligible for the WTO's
``special and differential treatment,''\16\ and (2) the lack of timely
compliance with requirements to notify the WTO of changes in trading
regimes or levels of subsidies. In addition, the United States has been
among those pushing hard to complete pending negotiations to curb
fishery subsidies and create new rules on e-commerce. All will be
difficult to bring to a final conclusion if the United States is not
trusted as being genuinely interested in reform and if other WTO
members remain skeptical of the value of reaching new agreements if
those deals cannot be enforced because the Appellate Body has been
paralyzed.
---------------------------------------------------------------------------
\16\ WT/GC/W/757/Rev. 1, December 9, 2019.
The surest way for the United States to achieve its various goals
is to work to reform the Appellate Body first--both as a sign of good
faith and because a reformed Appellate Body is in the United States'
interest. An improved but functioning Appellate Body could also form
the core of a broader package of WTO reforms. For example, the United
States could agree to unblock the appointments to a reformed Appellate
Body while the rest of the WTO members accept clear criteria defining
which countries can be considered ``developing'' for purposes of the
WTO's special treatment. A deal along these lines give everyone
something they want. The United States gets both reforms to the
Appellate Body and a guarantee that countries that are large enough or
rich enough to be in the OECD or the G20 cannot claim special
privileges as developing countries while the rest of the world gets a
functioning but improved binding dispute settlement system that leaves
in place special privileges for those countries that really need it.
But such a process is unlikely to start unless and until the United
States indicates which of the many ideas for reforming the Appellate
Body could form the basis for a bargain.
VI. Conclusion
Given the global economic pain from the coronavirus pandemic and
the likely emergence of a post-pandemic wave of protectionism, the
world needs a strong and effective WTO more than ever. Successfully
confronting a rising China with its state-run economy also requires a
fully functioning WTO. The best way to achieve that is to start by
fixing the dispute settlement system which underpins the rules-based
trading system. Doing so will require U.S. leadership that moves beyond
simply tearing the Appellate Body down. Now is the time to rebuild it.
A revitalized dispute settlement system can then serve as a catalyst to
broader reforms of the WTO itself.
Annex A
WTO Dispute Settlement Cases in Which the United States Succeeded in Demonstrating Violations of WTO Obligations
by Trading Partners \1\
----------------------------------------------------------------------------------------------------------------
Date
Case Title Requested Summary Effects
----------------------------------------------------------------------------------------------------------------
Japan DS 8 Taxes on 7/7/1995 The complainants claimed that Japan eliminated
(with EU \2\ PAlcoholic spirits exported to Japan discriminatory taxes and all
and Canada DS Beverages were discriminated against tariffs on distilled spirits.
8, 10 and 11) under the Japanese Liquor Tax U.S. distilled spirits
Law which created a system of exports to Japan were $138
internal taxes with a million in 2019.
substantially lower tax on
``shochu'' than on whisky,
cognac and white spirits. The
Panel and the Appellate Body
concluded that the Japanese
Liquor Tax Law is
inconsistent with the GATT,
by taxing vodka in excess of
shochu and by taxing
different liquors at
different rates to as to
afford protection to domestic
production.
----------------------------------------------------------------------------------------------------------------
EU DS 26 Measures 1/26/1996 The U.S. claimed that measures Settlement reached in 2009 for
Concerning taken by the EU restricting quota of 45,000 tons of non-
Meat and Meat or prohibiting imports of hormone-treated beef exports
Products meat and meat products from to the EU; agreement updated
(Hormones) the U.S. because they were in 2019 to ensure U.S. access
produced using hormones are to 35,000 of the 45,000 tons,
inconsistent with the SPS estimated at $420 million in
Agreement. The Panel found U.S. beef exports.
that the EC ban on imports of
meat and meat products from
cattle treated with any of
six specific hormones for
growth promotion purposes was
inconsistent SPS Agreement.
The Appellate Body upheld the
Panel's finding that the EU
import prohibition was
inconsistent with Article 5.1
of the SPS Agreement's
requirement that measures be
based on a risk assessment,
which the EU hadnot done.
----------------------------------------------------------------------------------------------------------------
Canada DS 31 Certain 3/11/1996 The U.S. challenged Canadian
Measures restrictions on imports of
Concerning certain periodicals, which
Periodicals prohibited ``special
editions,'' and imposed a tax
equal to 80 percent of the
value of all the
advertisements contained in
the split-run edition, along
with different postal rates
for domestic versus foreign
periodicals. The Appellate
Body found the quantitative
restrictions, tax, and postal
rates to be in violation of
Canada's commitments under
the GATT and its taxes
favorable postal rates to be
discriminatory.
----------------------------------------------------------------------------------------------------------------
India DS 50 Patent 7/2/1996 The U.S. challenged India's
Protection for lack of patent protection for
Pharmaceutical pharmaceutical and
and agricultural chemical
Agricultural products in India. The Panel,
Chemicals as confirmed by the Appellate
Body, found that India has
not complied with its
obligations under the TRIPS
Agreement by failing to
establish a mechanism that
adequately preserves novelty
and priority in respect of
applications for product
patents for pharmaceutical
and agricultural chemical
inventions, and by failing to
establish a system for the
grant of exclusive marketing
rights.
----------------------------------------------------------------------------------------------------------------
Argentina DS 56 Measures 10/4/1996 The U.S. challenged
Affecting Argentina's imposition of
Imports of minimum specific import
Footwear, duties on textiles and
Textiles, apparel, which were subject
Apparel and to either a 35-percent ad
other times valorem duty or a minimum
specific duty (whichever was
higher) and other measures by
Argentina. The Panel found
that the minimum specific
duties imposed by Argentina
on textiles and apparel were
in excess of those provided
for in Argentina's tariff
schedule. At the DSB meeting
on 22 June 1998, Argentina
announced that it had reached
an agreement with the U.S.,
whereby Argentina would
reduce the statistical tax to
0.5 percent by 1 January
1999, and cap specific duties
on textiles and apparel at 35
percent by 19 October 1998.
----------------------------------------------------------------------------------------------------------------
Indonesia DS 59 Certain 10/8/1996 The U.S. joined the EU and
(with EU DS 54 Measures Japan in contesting
and Japan DS Affecting the Indonesia's National Car
55) Automobile Program. The claim was that
Industry Indonesia's exemption for
``national vehicles'' and
components thereof from
customs duties and luxury
taxes was discriminatory and
violated the WTO's investment
and subsidy rules. The Panel
found that Indonesia was
discriminating against
imports in violation of
Articles I and II:2 of GATT
1994, along with related
violations of the WTO's TRIMs
Agreement and the SCM
Agreement
----------------------------------------------------------------------------------------------------------------
Japan DS 76 Measures 4/7/1997 The U.S. challenged Japan's
Affecting quarantine measures applied
Agricultural to imports of certain
Products-II agricultural products because
Japan required that every
variety of product be
separately tested and subject
to quarantine even if the
treatment has proved to be
effective for other varieties
of the same product. The
Panel and the Appellate Body
found that Japan's varietal
testing of apples, cherries,
nectarines and walnuts is
inconsistent with the
requirements of the SPS
Agreement.
----------------------------------------------------------------------------------------------------------------
Korea DS 84 Taxes on 5/23/1997 Korea internal taxes on U.S. distilled exports to
(with the EU Alcoholic certain alcoholic beverages Korea have grown to over $13
DS 75) Beverages were challenged as violating million in 2019. The U.S. is
Korea's national treatment Korea's third largest source
obligations (GATT Article of imported distilled
III:2) because the taxes spirits.
imposed on like imported
alcoholic beverages were
higher than domestically
produced ones. The Panel
found that Korea has taxed
the imported products in a
dissimilar manner, that the
tax differential was more
than de minimis, and is
applied so as to afford
protection to domestic
production, in violation of
Korea's GATT obligations.
----------------------------------------------------------------------------------------------------------------
India DS 90 Quantitative 7/15/1997 U.S. claimed that quantitative
Restrictions restrictions (QRs) on imports
on Imports of of a large number of
Agricultural, agricultural, textile and
Textile and industrial products and the
Industrial way in which the QRs were
Products administered by India
violated India's obligations
under the of GATT 1994, the
Agreement on Agriculture, and
the Agreement on Import
Licensing Procedures. The
Panel agreed with the U.S.
finding the measures to be
inconsistent with India's
obligations under Articles XI
and XVIII11 of GATT 1994, and
for agriculture products,
inconsistent with Article 4.2
of the Agreement on
Agriculture.
----------------------------------------------------------------------------------------------------------------
Canada DS103 Measures 10/8/1997 The U.S. challenged Canada's Export Value of Milk to
Affecting the export subsidies for dairy Canada; HS0401, HS0402; 1998
Importation of products and the total: $1.6 million; 2019
Milk and the administration by Canada of total: $42.5 million
Exportation of the tariff-rate quota on
Dairy Products milk, claiming the measures
distort markets for dairy
products and adversely affect
U.S. sales of dairy products.
The Appellate Body upheld one
of the Panel's narrow
findings: that Canada's value
limitation set at Can $20 for
each importation was
inconsistent with the GATT
schedule of concessions, as
there was no mention of such
value limitation in Canada's
schedule.
----------------------------------------------------------------------------------------------------------------
Australia DS126 Subsidies 5/4/1998 The U.S. challenged
Provided to Australia's provision of
Producers and prohibited export subsidies
Exporters of to Australian producers and
Automotive exporters of automotive
Leather leather, including subsidies
provided to Howe and Company
Proprietary Ltd. (or any of
its affiliated and/or parent
companies), which allegedly
involve preferential
government loans of about
$A25 million and non-
commercial terms and grants
of about $A30 million. The
Panel found that some, but
not all, of the subsides were
prohibited subsidies on the
grounds that the payments
were ``tied to'' export
performance.
----------------------------------------------------------------------------------------------------------------
Mexico DS132 Anti-Dumping 5/8/1998 The U.S. claimed that Mexico's Export Value of HFCS to
Investigation anti-dumping duties on high- Mexico; HS170260, HS170250;
of High- fructose corn syrup (HFCS) 1998 total: $58.2 million;
PFructose Corn grades 42 and 55 were imposed 2019 total: $422.9 million
Syrup (HFCS) without conducting a proper
from the investigation. The U.S.
United States contended that the manner in
which the application for an
anti-dumping investigation
was made (regarding
retroactivity, explanation of
determination, and
provisional measures), as
well as the manner in which a
determination of threat of
injury was made, were
inconsistent with various
articles of the Anti-Dumping
Agreement. The Panel and the
Appellate Body agreed with a
number of the U.S.
complaints.
----------------------------------------------------------------------------------------------------------------
Korea DS161 Measures 2/1/1999 The U.S. challenged a Korean Export Value of Beef to Korea;
Affecting regulatory scheme that HS201, HS202; 1999 total:
Imports of discriminates against $330.5 million; 2019 total:
Fresh, Chilled imported beef by, among other $1.77 billion
and Frozen things, confining sales of
Beef imported beef to specialized
stores (dual retail system),
limiting the manner of its
display, and otherwise
constraining the
opportunities for the sale of
imported beef. The Panel and
the Appellate Body, found
that Korea's dual retail
scheme discriminated against
imported beef and that sales
opportunities were denied.
----------------------------------------------------------------------------------------------------------------
Canada DS170 Term of Patent 5/6/1999 The U.S. challenged Canada's On 12 July 2001, Bill S-17
Protection failure to provide a patent came into force which brought
term of no less than 20 years Canada's Patent Act into
from the filing date for the conformity with its
patent for all future and obligations under the TRIPS
certain pre-existing patents, Agreement.
as required by the TRIPS
Agreement.
----------------------------------------------------------------------------------------------------------------
European Union Protection of 6/1/1999 The U.S. challenged the EU's
DS174 (with Trademarks and lack of protection of
Australia) Geographical trademarks and geographical
Indications indications (GIs) for
for agricultural products and
Agricultural foodstuffs, claiming that EC
Products and Regulation 2081/92 does not
Foodstuffs provide national treatment
with respect to geographical
indications and does not
provide sufficient protection
to pre-existing trademarks
that are similar or identical
to a geographical indication.
The Panel agreed with the
U.S. that the EU's GI
Regulation does not provide
national treatment and that
the TRIPS Agreement does not
allow unqualified coexistence
of GIs with prior trademarks.
----------------------------------------------------------------------------------------------------------------
India DS175 Measures 6/2/1999 The U.S. contested certain Export Value of Included Autos
Affecting Indian measures requiring and Auto Parts to India;
Trade and manufacturing firms in the HS8703, HS8706, HS8707; 1999
Investment in motor vehicle sector to total: $840,000; 2019 total:
the Motor achieve specific levels of $21,850,000
Vehicle Sector local content, neutralize
foreign exchange, and limit
imports based on the previous
year's exports. The Panel
determined that India had
acted inconsistently with the
indigenization requirement,
had limited imports in
relation to an export
commitment, and created a
measure to disincentivize
purchases of imported
products and discriminated
against imported products.
----------------------------------------------------------------------------------------------------------------
Mexico DS204 Measures 8/17/2000 The U.S. challenged Mexico's
Affecting adoption or maintenance of
Telecommunicat anti- competitive and
ions Services discriminatory regulatory
measures, its toleration of
certain privately established
market access barriers, and
its failure to take needed
regulatory action in the
basic and value-added
telecommunications sectors.
The Panel ruled that Mexico
had violated its GATT
commitments.
----------------------------------------------------------------------------------------------------------------
Japan DS245 Measures 3/1/2002 The U.S. challenged Japan's Export Value of Apples to
Affecting the restrictions on imports of Japan; HS080810; 2002 total:
Importation of apples which Japan claimed $101,000; 2019 total:
Apples were necessary to protect $792,000
against the introduction of
fire blight. The Appellate
Body upheld the Panel's
finding that Japan's
phytosanitary measure imposed
on imports of apples from the
U.S. was maintained ``without
sufficient scientific
evidence,'' and that the Pest
Risk Assessment conducted by
Japan failed to evaluate the
likelihood of entry,
establishment, or spread of
fire blight specifically
through apple fruit.
----------------------------------------------------------------------------------------------------------------
Canada DS276 Measures 12/17/2002 The U.S. challenged actions by Export Value of Grain and
Relating to the Canadian Wheat Board and Wheat to Canada; HS1001,
Exports of the treatment accorded to HS1007; 2002 total: $3.57
Wheat and grain imported into Canada, million; 2019 total: $41.48
Treatment of claiming Canada and the million
Imported Grain Canadian Wheat Board (entity
enjoying exclusive rights to
purchase and sell Western
Canadian wheat for human
consumption) gave unfair
treatment to domestically
produced grain by restricting
the mixing of imported and
domestic wheat and by capping
the maximum revenues that
railroads can receive on the
shipment of imported grain.
In 2005, Canada amended its
laws and regulations to bring
Canada into compliance with
the ruling.
----------------------------------------------------------------------------------------------------------------
European Union Measures 5/13/2003 The U.S. challenged the EU's
DS291 Affecting the 1998 moratorium on the
Approval and approval of biotech products
Marketing of because it restricted imports
Biotech of agricultural and food
Products products from the U.S. The
Panel found that, by applying
the moratorium, the European
Communities had acted
inconsistently with its
obligations under the SPS
Agreement because the de
facto moratorium led to undue
delays in the completion of
EC approval procedures.
----------------------------------------------------------------------------------------------------------------
Mexico DS295 Definitive Anti- 6/16/2003 The U.S. contested Mexico's Export Value of U.S. Long
Dumping definitive anti-dumping Grain White Rice to Mexico;
Measures on measures on beef and long HS100630; 2003 total: $13.8
Beef and Rice grain white rice as well as million; 2019 total: $36.3
certain provisions of million
Mexico's Foreign Trade Act Export Value of U.S. Beef to
and its Federal Code of Civil Mexico; HS0201; 2003 total:
Procedure. The Panel upheld $581.7 million; 2019 total:
all of the U.S. claims $743.7 million
concerning both the injury
and the dumping margin
determination of the Mexican
investigating authority in
the rice investigation,
applying judicial economy
with respect to some other
related claims.
----------------------------------------------------------------------------------------------------------------
Mexico DS308 Tax Measures on 3/16/2004 The U.S. challenged Mexican Export Value of Soft Drinks to
Soft Drinks taxes on soft drinks and Mexico; HS220210; 2004 total:
and Other other beverages that use any $9.9 million; 2019 total:
Beverages sweetener other than cane $15.7 million
sugar. The tax measures
concerned included: (i) a 20-
percent tax on soft drinks
and other beverages that use
any sweetener other than cane
sugar (``beverage tax''),
which is not applied to
beverages that use cane
sugar; and (ii) a 20-percent
tax on the commissioning,
mediation, agency,
representation, brokerage,
consignment and distribution
of soft drinks and other
beverages that use any
sweetener other than cane
sugar (``distribution tax'').
The Appellate Body the taxes
were levied in excess of
taxes levied against like
domestic products, were
applied in a dissimilar
manner to provide protections
to domestic production, and
gave imported like product
less favorable treatment.
----------------------------------------------------------------------------------------------------------------
European Union Selected 9/21/2004 The U.S. challenged the EU's
DS315 Customs convoluted administration of
Matters laws and regulations (25
different agencies due to one
for each EU member state)
pertaining to the
classification and valuation
of products for customs
purposes and its failure to
institute tribunals or
procedures for the prompt
review and correction of
administrative action on
customs matters. The US
claimed the EU's process is a
violation of its obligation
to administer its customs
laws in a uniform manner. The
Panel and the Appellate Body
found certain specific
violations but did not rule
on the EU system as a whole.
----------------------------------------------------------------------------------------------------------------
European Union Measures 10/6/2004 The United States challenged a ``In 2018, the U.S. requested
DS316 Affecting series of subsidies provided authority to impose
Trade in Large by the EU and four of its countermeasures commensurate
Civil Aircraft member states in support of with the adverse effects that
Airbus as violations of the the EU subsidies continued to
SCM Agreement. The measures cause and a WTO arbitrator
included: the provision of found that the annual adverse
financing for design and effects to the United States
development to Airbus amounted to $7.5 billion per
companies (``launch aid''); year.'' USTR Report
the provision of grants and
government-provided goods and
services to develop, expand,
and upgrade Airbus
manufacturing sites for the
development and production of
the Airbus A380; the
provision of loans on
preferential terms. The
Appellate Body upheld the
Panel's finding that certain
subsidies provided by the
European Union and certain
member state governments to
Airbus are incompatible with
Article 5(c) of the SCM
Agreement because they have
caused serious prejudice to
the interests of the U.S. On
2 October 2019, the U.S.
requested authorization from
the DSB to take
countermeasures with respect
to the European Union and
certain member States
(Germany, France, Spain, and
the United Kingdom) at a
level not exceeding, in
total, U.S. $7,496.623
million annually.
----------------------------------------------------------------------------------------------------------------
Turkey DS334 Measures 11/2/2005 The U.S. challenged Turkey's Export Value of Rice to
Affecting the import restrictions on rice, Turkey; HS1006; 2005 total:
Importation of contending that Turkey $38.8 million; 2019 total:
Rice requires an import license to $2.7 million
import rice but fails to
grant such licenses at
Turkey's bound rate of duty.
The Panel found that Turkey's
action constitutes a
quantitative import
restriction and a practice of
discretionary import
licensing which is
inconsistent with the
Agreement on Agriculture. The
Panel also concluded that
Turkey's requirement that
importers must purchase
domestic rice in order to be
allowed to import rice at
reduced-tariff levels under
the tariff quotas
discriminated against
imported rice.
----------------------------------------------------------------------------------------------------------------
China DS342 Measures 3/30/2006 The U.S. challenged China's Export Value of U.S. Auto
(with the EU Affecting imposition of a 25-percent Parts to China; HS8708; 2006
and Canada) Imports of ``charge'' on imported auto total: $532 million; 2019
Automobile parts ``characterized as total: $1.52 billion
Parts complete motor vehicles.'' If ``The value of subsidies made
the number or value of available to auto and auto
imported parts in the parts manufacturers in China
assembled vehicle exceeded between 2009 and 2011 was at
specified thresholds, the least $1 billion.'' USTR
regulations assess each of Report
the imported parts a charge
equal to the tariff on
complete automobiles
(typically 28 percent) rather
than the tariff applicable to
auto parts (typically 10-14
percent). The Appellate Body
upheld the Panel's findings
that the measures were in
violation of China's
obligations under the GATT
because they imposed an
internal charge on imported
auto parts that was not
imposed on like domestic auto
parts and because they
accorded imported parts less
favorable treatment than like
domestic auto parts by, inter
alia, subjecting only
imported parts to additional
administrative procedures.
----------------------------------------------------------------------------------------------------------------
India DS360 Additional and 3/6/2007 The U.S. challenged India's Export Value of Wine and
Extra- ``additional duties'' or Distilled Products to India;
Additional ``extra additional duties'' HS2204, HS2208; 2007 total:
Duties on that India applied to $2.5 million; 2019 total:
Imports from imports, including wines and $7.5 million
the United distilled products (HS2204,
States 2205, 2206 and 2208). The
Panel concluded that the U.S.
has failed to establish that
the Additional Duty on
alcoholic liquor is
inconsistent with Article
II:1(a) or (b) of the GATT
1994 and that it has also
failed to establish that the
SUAD is inconsistent with
Article II:1(a) or (b) of the
GATT 1994. The Appellate Body
reversed the Panel to find
that India's additional
duties, to the extent that
they imposed higher duties on
imports than on domestic
products, were a violation of
India's GATT obligations.
----------------------------------------------------------------------------------------------------------------
China DS362 Measures 4/10/2007 The U.S. challenged China's
Affecting the protection of intellectual
Protection and property rights, focusing on
Enforcement of four issues: (1) the
Intellectual thresholds that must be met
Property in order for certain acts of
Rights trademark counterfeiting and
copyright piracy to be
subject to criminal
procedures and penalties; (2)
goods that infringe
intellectual property rights
that are confiscated by
Chinese customs authorities,
in particular the disposal of
such goods following removal
of their infringing features;
(3) the scope of coverage of
criminal procedures and
penalties for unauthorized
reproduction or unauthorized
distribution of copyrighted
works; and (4) the denial of
copyright and related rights
protection and enforcement to
creative works of authorship,
sound recordings and
performances that have not
been authorized for
publication or distribution
within China. The Panel
concluded that, to the extent
that the Copyright Law and
the Customs measures as such
are inconsistent with the
TRIPS Agreement, they nullify
or impair benefits accruing
to the U.S. under that
Agreement.
----------------------------------------------------------------------------------------------------------------
China DS363 Measures 4/10/2007 The U.S. challenged China
Affecting over: (1) certain measures
Trading Rights that restrict trading rights
and with respect to imported
Distribution films for theatrical release,
Services for audiovisual home
Certain entertainment products (e.g.,
Publications video cassettes and DVDs),
and sound recordings and
Audiovisual publications (e.g., books,
Entertainment magazines, newspapers and
Products electronic publications); and
(2) certain measures that
restrict market access for,
or discriminate against,
foreign suppliers of
distribution services for
publications and foreign
suppliers of audiovisual
services (including
distribution services) for
audiovisual home
entertainment products. The
Appellate Body upheld the
Panel's conclusion that the
provisions of China's
measures prohibiting foreign-
invested entities from
engaging in the distribution
of sound recordings in
electronic form are
inconsistent with China's
market access and national
treatment commitments of the
GATS and violated China's
Accession Protocol commitment
to grant non-discretionary
trade rights.
----------------------------------------------------------------------------------------------------------------
European Union Tariff 5/8/2008 The U.S. challenged the EU
DS375 Treatment of (and certain of its member
Certain states) over their tariff
Information treatment of certain
Technology information technology
Products products. The Panel upheld
the U.S. claim that the
European Union (EU) violated
its WTO tariff commitments by
imposing duties as high as 14
percent on three high-tech
products. For all three
products at issue--flat panel
computer monitors,
multifunction printers, and
certain cable, satellite, and
other set-top boxes--the
Panel concluded that the EU
tariffs were inconsistent
with its obligations.
----------------------------------------------------------------------------------------------------------------
China DS394 Measures 6/23/2009 The U.S. contested China's
Related to the restraints on the export
Exportation of (export duties, export
Various U.S. quotas, minimum export price
Raw Materials requirements, etc.) of
various forms of raw
materials (bauxite, coke,
fluorspar, magnesium, etc).
The Appellate Body upheld the
Panel's finding that China's
measures violate China's
Accession Protocol, could not
be counted as general
exceptions under the GATT
1994, and that China failed
to publish promptly its
decision regarding an export
quota.
----------------------------------------------------------------------------------------------------------------
Philippines Taxes on 1/14/2010 The U.S. claimed that the Export Value of Distilled
DS403 Distilled Philippines taxes on Spirits to Philippines;
Spirits distilled spirits HS2207, HS2208; 2010 total:
discriminate against imported $16.3 million; 2019 total:
distilled spirits by taxing $108.2 million
them at a substantially
higher rate than domestic
spirits. The Panel found that
because imported spirits are
taxed less favorably than
domestic spirits, the
Philippine measure, while
facially neutral, is
nevertheless discriminatory
and thus violates the
obligations under the first
and second sentences of
Article III:2 of the GATT
1994. The Appellate Body
upheld the Panel's finding
that each type of imported
distilled spirit at issue--
gin, brandy, rum, vodka,
whisky, and tequila--made
from non-Pdesignated raw
materials, is ``like'' the
same type of distilled spirit
made from designated raw
materials and that the
Philippine taxes constituted
impermissible discrimination.
----------------------------------------------------------------------------------------------------------------
China DS413 Certain 9/15/2010 The U.S. challenged China's ``By industry estimates, the
Measures restrictions permit only a U.S. stands to gain 6,000
Affecting Chinese entity (China jobs related to EPS.'' USTR
Electronic UnionPay) to supply Report
Payment electronic payment services
Services for payment card transactions
denominated and paid in
renminbi in China. The Panel
found each of these
requirements to be
inconsistent with China's
national treatment
obligations under Article
XVII of the GATS. It found,
through these requirements,
that China modifies the
conditions of competition in
favor of CUP and therefore
fails to provide national
treatment to EPS suppliers of
other members, contrary to
China's commitments. in
respect of this alleged
across-the-board requirement.
----------------------------------------------------------------------------------------------------------------
China DS414 Countervailing 9/15/2010 The United States challenged
and Anti- China's investigation and
Dumping Duties decision to impose CVD and AD
on GOES duties on Grain Oriented Flat-
Rolled Electrical Steel
(GOES) from the United
States. The Panel and the
Appellate Body found that
China had committed a number
of procedural and substantive
errors that rendered their
CVD and AD decisions
inconsistent with the WTO's
AD and SCM Agreement.
----------------------------------------------------------------------------------------------------------------
China DS427 Anti-Dumping 9/20/2011 The U.S. contested China's AD Export Value of Boiler
and and CVD measures on broiler Products to China; HS020713,
Countervailing products from the U.S. HS020714, HS050400; 2011
Duty Measures contending that China acted total: $236.2 million; 2019
on Broiler inconsistently with the Anti- total: $235.1 million
Products from Dumping Agreement in its ``In 2009--the year before
the United determination of the cost of China imposed the duties--the
States production of the foreign United States exported over
like product for the purposes 613,000 metric tons of
of constructing normal value, broiler meat to China.
by (i) improperly rejecting Exports fell almost 90
the cost allocations kept in percent after the imposition
the normal books and records of the duties.'' USTR Report
of the U.S. respondents; (ii)
applying its own allocation
methodology that did not
reflect the costs associated
with the production and sale
of the products under
consideration; and (iii)
allocating the costs of
producing certain products
(blood and feathers) to the
other products one of the
respondents produced. The
Panel upheld the complaint.
----------------------------------------------------------------------------------------------------------------
India DS430 Measures 3/6/2012 The U.S. contested India's SPS Export Value of Meat and Meat
Concerning the restrictions imposed on the Products to India; HS02; 2012
Importation of importation of various total: $94,000; 2019 total:
Certain agricultural products, $741,000
Agricultural including meat and meat
Products products, egg and egg powder,
and milk and milk products,
from the U.S. purportedly
because of concerns related
to Avian Influenza (India's
AI measures). The Appellate
Body agreed with the Panel
that its finding, that
India's AI measures were
inconsistent with commitments
under the Sanitary and
Phytosanitary Agreement
because they were not based
on an international standard
or a risk assessment,
arbitrarily and unjustifiably
discriminated between members
where identical or similar
conditions prevailed, and
were significantly more
restrictive that required to
achieve India's appropriate
level of protection. On 7
July 2016, the U.S. requested
the authorization of the DSB
to suspend concessions or
other obligations pursuant to
the DSU because India has
failed to comply with the
recommendations and rulings
of the DSB in this dispute
within the reasonable period
of time for India to do so.
----------------------------------------------------------------------------------------------------------------
China DS431 Measures 3/13/2012 The U.S. challenged China's
Related to the restrictions on the export of
Exportation of various forms of rare earths,
Rare Earths, tungsten and molybdenum.
Tungsten and China had three types of
Molybdenum restrictions: export duties,
export quotas, and trading
rights. The Panel found that
the export duties and trading
rights requirements were a
violation of China's
Accession Protocol that could
not be justified under
Article XX of the GATT.
However, the quotas were not
determined to be in
violation.
----------------------------------------------------------------------------------------------------------------
China DS440 Anti-Dumping 7/5/2012 The U.S. challenged China's AD ``In 2013, the United States
and and CVD duties on certain exported $64.9 billion of
Countervailing automobiles from the U.S. The autos, with $8.5 billion of
Duties on AD duties ranged from 2.0 those exports, or 13 percent
Certain percent to 21.5 percent, and of the total, going to China.
Automobiles the CVD duties ranged from China's unjustified duties,
from the 6.2 percent to 12.9 percent. which ranged up to 21.5
United States The specific products percent, affected an
affected by the duties are estimated $5.1 billion worth
American-made cars and SUVs of U.S. auto exports in 2013.
with an engine capacity of . . .'' USTR Report
2.5 liters or larger. The
Panel found that MOFCOM erred
in its determination of the
residual anti-dumping and
countervailing duty rates for
unknown exporters of the
subject product, by
improperly determining that
U.S. exports were causing
injury to domestic Chinese
industry and improperly
analyzing the effects of U.S.
exports on prices in the
Chinese market.
----------------------------------------------------------------------------------------------------------------
Argentina DS444 Measures 8/21/2012 The U.S. challenged: (i) the ``The following U.S. States
Affecting the requirement to present for represented the largest share
Importation of approval of a non-automatic of exports to Argentina in
Goods import license: Declaracion 2013, each exporting over
Jurada Anticipada de $180 million in goods that
Importacion (DJAI); (ii) non- year: Texas, Florida,
automatic licenses required Louisiana, California,
in the form of Certificados Illinois, South Carolina,
de Importacion (CIs) for the Michigan, New York, Georgia,
importation of certain goods; North Carolina.'' USTR Report
(iii) requirements imposed on
importers to undertake
certain trade- restrictive
commitments; and (iv) the
alleged systematic delay in
granting import approval or
refusal to grant such
approval, or the grant of
import approval subject to
importers undertaking to
comply with certain allegedly
trade-restrictive
commitments. With respect to
the DJAI requirement, the
Appellate Body upheld the
Panel's findings that this
requirement constitutes a
restriction on the
importation of goods and is
therefore inconsistent with
Article XI:1 of the GATT.
----------------------------------------------------------------------------------------------------------------
India DS456 Certain 2/6/2013 The U.S. challenged India's Export Value of Solar Cells
Measures domestic content requirements and Modules to India;
Relating to under the Jawaharlal Nehru HS854140; 2013 total: $15
Solar Cells National Solar Mission million; 2019 total: $15.7
and Solar (``NSM'') for solar cells and million
Modules solar modules. The Panel
found that the DCR measures
are trade-related investment
measures covered by the TRIMs
Agreement and that they were
inconsistent with both the
GATT 1994 and the TRIMs
Agreement. On 19 December
2017, the U.S. requested the
authorization of the DSB to
suspend concessions or other
obligations pursuant to
Article 22.2 of the DSU on
the grounds that India had
failed to comply with the
DSB's recommendations and
rulingswithin the reasonable
period of time.
----------------------------------------------------------------------------------------------------------------
Indonesia DS478 Importation of 5/8/2014 The U.S. challenged 18 ``In 2016, exports of the
(with New Horticultural measures imposed by Indonesia horticultural products and
Zealand DS Products, on the importation of animal products affected by
477) Animals and horticultural products, Indonesia's imports totaled
Animal animals and animal products. $170 million. . . . These
Products Most of these measures (17) restrictions cost U.S.
concerned Indonesia's import farmers and ranchers millions
licensing regimes for of dollars per year in lost
horticultural products and export opportunities in
animals and animal products. Indonesia.'' USTR Report
The challenge also included ``In 2015, U.S. exports of
Indonesia's conditioning of affected horticultural
importation of these products products to Indonesia
on the sufficiency of exceeded $87 million,
domestic production to fulfil including $28 million of
domestic demand. The Panel apples and over $29 million
found that all 18 measures at of grapes. U.S. exports of
issue were prohibitions on affected animals and animal
importation or restrictions products totaled $26 million
having a limiting effect on in 2015.'' USDA Press Release
importation and thus
inconsistent with the GATT.
On 2 August 2018, the U.S.
requested the authorization
of the DSB to suspend
concessions or other
obligations pursuant to
Article 22.2 of the DSU on
the grounds that Indonesia
had failed to comply with the
DSB's recommendations and
rulings within the reasonable
period of time.
----------------------------------------------------------------------------------------------------------------
China DS511 Domestic 9/13/2016 The U.S. challenged China's ``In 2015, China's `market
Support for provision of domestic support price support' for these
Agricultural in favor of agricultural products is estimated to be
Producers producers, in particular, to nearly $100 billion in excess
those producing wheat, India of the levels Chinacommitted
rice, Japonica rice and corn. to during its accession.''
The Panel first determined USTR Report
all components necessary to
compute China's market price
support for wheat, Indica
rice and Japonica rice before
finding that China's level of
domestic support in each of
the years 2012-2015 exceeded
its 8.5-Ppercent de minimis
level of support for each of
these products.
----------------------------------------------------------------------------------------------------------------
China DS517 Tariff Rate 12/15/2016 The U.S. contested the manner ``USDA estimates that if
Quotas for in which China administers China's TRQs had been fully
Certain its tariff rate quotas, used, it would have imported
Agricultural including those for wheat, as much as $3.5 billion worth
Products short- and medium- grain of corn, wheat and rice in
rice, long grain rice, and 2015 alone.'' USTR Report ``
corn. The Panel concluded ``AgResource calculates that
that China's TRQ China did not secure and
administration as a whole is import an estimated $45
inconsistent with its billion of world corn/wheat
obligations to administer over the past 16 years.''
TRQs on a transparent, Farm Foundation
predictable, and fair basis,
to administer TRQs using
clearly specified
requirements and
administrative procedures,
and to administer TRQs in a
manner that would not inhibit
the filling of each TRQ.
----------------------------------------------------------------------------------------------------------------
India DS541 Export Related 3/14/2018 The U.S. challenged India's
Measures provision of export subsidies
under five sets of measures:
the Export Oriented Units,
Electronics Hardware
Technology Park and Bio-
Technology Park (EOU/EHTP/
BTP) Schemes; the Export
Promotion Capital Goods
(EPCG) Scheme; the Special
Economic Zones (SEZ) Scheme;
a collection of duty
stipulations described in
these proceedings as the Duty-
Free Imports for Exporters
Scheme (DFIS); and the
Merchandise Exports from
India Scheme (MEIS). The
Panel found the subsidies to
be inconsistent with India'
obligations under the ASCM.
India is in the process of
appealing.
----------------------------------------------------------------------------------------------------------------
\1\ While this list is intended to be comprehensive, it is possible that cases have been inadvertently left off
of this list. The list does not include cases that were resolved through a mutually agreed upon settlement or
means other than a dispute before a WTO panel.
\2\ Throughout this document, the European Union (EU) and the European Communities (EC) shall be designated as
``EU'' even though the EC did not formally become the EU until the adoption of the Maastricht Treaty in 1992.
Annex B
Statements by U.S. Stakeholders Regarding the WTO Appellate Body
U.S. Chamber of Commerce CEO Thomas J. Donohue, in his annual State of
American Business address (1/9/2020):
Staying engaged in the world also means remaining committed to
the multilateral organizations and trading arrangements that we
helped build. If the World Trade Organization didn't exist,
we'd have to create it. Its rules protect American business
from unfair treatment and protectionism. Safeguarding this
institution and its dispute settlement system should be an
urgent international priority. Let's not shutter the WTO
Appellate Body. Such drastic action doesn't serve America's
interests. America must be involved, not isolated.
Letter to President Trump signed by 26 business and agriculture
groups:
We urge your administration to embrace the plan to renovate the
WTO appeals process outlined below. The proposal seeks to
reform the Appellate Body in a manner consistent with concerns
raised by USTR. . . .
USTR has resisted negotiating reforms to the WTO appeals
process until other countries acknowledge that the Appellate
Body has strayed beyond its mandate. The Walker Principles were
developed with the purpose of restoring proper functioning to
the Appellate Body. By adopting them along with the related
enforcement measures and term limits for the secretariat, WTO
members would be agreeing with the United States that the
Appellate Body has overreached.
We urge your administration to strike while the iron is hot by
stating prior to December 10 that the goal of the United States
is not to kill the Appellate Body, but rather to reform it. The
statement should clarify that adoption of the reform plan would
end U.S. opposition to the appointment of new Appellate Body
members.
Signed December 6, 2019 by:
Americans for Prosperity, American Craft Spirits Association, American
Soybean Association, Center for Freedom and Prosperity, Citizens
Against Government Waste, Coalition of American Metal Manufacturers and
Users, Competitive Enterprise Institute, Computing Technology Industry
Association (CompTIA), Consumer Choice Center, The Fashion Accessories
Shippers Association, The Fashion Jewelry and Accessories Trade
Association, FreedomWorks, Gemini Shippers Association, Institute for
Policy Innovation, International Dairy Foods Association, The LIBRE
Initiative, National Corn Growers Association, National Council of
Farmer Cooperatives, National Retail Federation, National Taxpayers
Union, North American Association of Food Equipment Manufacturers,
Retail Industry Leaders Association, R Street Institute, Taxpayers
Protection Alliance, USA Poultry and Egg Export Council, U.S. Grains
Council.
https://www.rstreet.org/wp-content/uploads/2019/12/WTO-AB-coalition-
letter-to-president-2019-12-06.pdf
National Foreign Trade Council:
[A] fully functioning and binding dispute settlement system is
essential to the credibility and functioning of the global
trading system. WTO members must resolve this crisis
immediately and agree on a way forward that addresses the
legitimate concerns that have been raised. Those members who
have raised these concerns have a unique responsibility to put
forward specific reform proposals that would enable the AB to
resume operating and perform its function more effectively.
http://www.nftc.org/default/trade/WTO/2019-NFTC-Strengthening-the-
WTO.pdf
Letter to President Donald J. Trump signed by 10 business and trade
association groups:
We strongly urge you to state publicly that the goal of the
United States is not to kill the Appellate Body, but rather to
reform it. We further urge you to develop a reform proposal as
quickly as possible and present it to WTO members, while
indicating that adoption of such measures would lead to
restarting the Appellate Body appointment process. This
approach would maximize leverage for reform. That leverage is
likely to decrease significantly if the Appellate Body stops
functioning; some countries already have agreed to use
arbitration procedures in lieu of formal appeals. The Appellate
Body will go dormant in December unless new members are
approved promptly. By acting expeditiously, the United States
could lead a process of constructive change. Doing so would
help to strengthen worldwide business confidence. This would
serve the best interests of the many American companies and
workers that earn all or part of their livelihoods from
international trade.
Signed October 23, 2019 by:
Americans for Prosperity, The LIBRE Initiative, American Legislative
Exchange Council, ALEC Action, Center for Freedom and Prosperity,
Coalition of American Metal Manufacturers and Users, Competitive
Enterprise Institute, National Taxpayers Union, Precision Metal forming
Association, R Street Institute.
https://mk0xituxemauaaa56cm7.kinstacdn.com/wp-content/uploads/2019/10/
WTO-AB-letter-to-president-10-23-2019-2.pdf
______
Questions Submitted for the Record to Jennifer A. Hillman
Questions Submitted by Hon. Chuck Grassley
Question. The Appellate Body has received a lot of attention about
its shortcomings. However, I'm not sure the panel process is completely
perfect. The initial panel process takes much longer than anyone
anticipated. Compliance panels have an important task of deciding
disputes in which a party has already found they've breached their WTO
obligations. The rules provide those panels should issue decisions in
90 days, but they almost never do.
Do you think we need to look at reforming the panel process?
Answer. Yes. Both panels deciding initial cases and panels
reviewing compliance with rulings from the Dispute Settlement Body
(DSB) are taking longer than initially contemplated. The reason for the
lengthy proceedings varies from case to case but is often a combination
of significantly more complex complaints with many separate claims; a
lack of staff to begin working on cases as soon as they are filed due
to the much higher case load than expected when the WTO dispute
settlement system was put in place; scheduling difficulties with
panelists who sit on panels in addition to demanding, full-time jobs
elsewhere; and the parties themselves--often involving the use of
private outside counsel seconded to a government delegation--filing
long, complicated submissions accompanied by voluminous exhibits. A
recent study shows that the average number of claims raised in panel
requests stood at eight during the first 5 years of the WTO (1995-2000)
but had risen to 23 claims per dispute for those cases filed between
2009 and 2013.\1\ As a result, panel reports are longer and the
requirement that they be issued in English, French, and Spanish adds
additional translation time. While an effort to increase staffing and
pressure from the WTO Secretariat on parties and the process has
recently reduced time frames for panel reports, more could be done to
streamline the process if the WTO members would agree to limit their
own submissions, both in length and in number of claims, and if
additional measures are taken to ensure that adequate Secretariat
resources are devoted to the panel process. Further attention to
additional reforms to improve the efficiency of the process is
certainly warranted.
---------------------------------------------------------------------------
\1\ https://www.graduateinstitute.ch/sites/internet/files/2018-11/
Busier%20than%20ever%20
%20New%20CTEI%20working%20paper%20on%20WTO%20Dispute%20Settlement.pdf?_g
a=2.1
53752760.1037896462.1600707205-2132530211.1600707205.
Question. You have a very unique perspective. Your career has
included being an ITC Commissioner, General Counsel at USTR, and an
Appellate Body member. You oversaw U.S. application of trade remedy
laws, the negotiation and defense of U.S. international commitments
regarding those laws, and judged in Geneva how to apply WTO rules. You
---------------------------------------------------------------------------
know this ground A-Z.
Congress feels strongly that the Appellate Body has overreached in
interpreting WTO obligations concerning trade remedies.
What can be done to undo some of that overreach, and make sure it
doesn't happen again? Do we need to look at the underlying agreements;
how the dispute settlement system works; or something else?
Answer. The most effective way to address the issue of overreach in
assessing trade remedies--anti-dumping duties, countervailing duties,
and safeguards--would be both changes to the dispute settlement system
itself along with either definitive interpretations of certain key
provisions in the trade remedy agreements or changes to the underlying
agreements to ensure a more appropriate standard by which panels review
the actions of investigating authorities such as the Department of
Commerce and the U.S. International Trade Commission.
In terms of changes to the functioning of the dispute settlement, I
have previously laid out three reforms to the WTO's Appellate Body that
would restore the system to what was envisioned when the WTO was
created in 1995.
1. Adopt the Walker principles. New Zealand's Ambassador and
Permanent Representative to the WTO David Walker was appointed in
February to ``seek workable and agreeable solutions to improve the
functioning of the Appellate Body.'' On November 28, 2019, he set forth
specific principles designed to address the six U.S. concerns spelled
out by USTR in its submissions to the DSB: (1) the practice of
Appellate Body members staying on after their term has expired to
finish an appeal that began while they were still in office; (2) the
failure to complete appeals in the required 90 days; (3) the Appellate
Body exceeding its authority in reviewing and sometimes overruling
factual findings by panels, despite a mandate that appeals be limited
to issues of law; (4) the Appellate Body's issuance of statements or
interpretations not necessary to resolve a dispute; (5) the elevation
of the significance of past decisions to near-binding precedent; and
(6) the Appellate Body overstepping its bounds by reaching decisions
that go beyond the text of the agreements themselves, potentially
taking away rights or adding to U.S. obligations.
The principles require the Appellate Body to make its decisions in
90 days and for Appellate Body members to leave promptly at the end of
a second term of office, to treat facts as facts (not subject to
appeal), to respect the more deferential standard of review for
antidumping investigations, to address only issues raised by parties
and only to the extent necessary to resolving the dispute at hand so
that its opinions are not advisory, to take previous Appellate Body or
panel reports into account only to the extent they are relevant and not
as precedent, and to ensure that its rulings do not add to the
obligations or take away any rights of the parties as contained in the
WTO rules. Collectively, the Walker principles are designed to make the
Appellate Body more efficient by shortening its time frames and its
reports while doing what the United States has demanded--return to the
rules as written in 1995. If adopted with unreserved acknowledgement by
the European Union and other skeptics, it would demonstrate widespread
member agreement that the Appellate Body has a limited mandate to
resolve only legal questions raised on appeal in strict accordance with
WTO rules.
2. Establish an oversight committee and audit to ensure compliance.
To build trust that the Appellate Body will adhere to the Walker
principles, the WTO should convene an oversight committee at least once
a year and when requested. The oversight committee could be made up of
the chairs of the lead WTO committees--its General Council, Council for
Trade in Goods, Council for Trade in Services, Council for Trade-
Related Aspects of Intellectual Property Rights, and the Dispute
Settlement Body, with the chair of the Dispute Settlement Body
appointing four additional independent trade-law experts to the
committee to ensure a proper representation of expertise. The
committee's sole task should be to assess whether the Appellate Body
has adhered to the Walker principles, either over the course of a given
year or, when asked, in an individual case. The WTO should convene an
oversight committee.
3. Limit the service of members of the Appellate Body Secretariat
to no longer than 8 years--the maximum length of time of an Appellate
Body member. The root cause of many U.S. concerns rests not just with
the Appellate Body members themselves, but with its Secretariat--
particularly the lawyers who work for the Appellate Body as a whole.
Over time, the Secretariat has gained experience and expertise that
often is greater than that of the Appellate Body members, who serve on
a part-time basis for a maximum of 8 years. Secretariat lawyers, on the
other hand, devote all of their time over many years to working on
appeals and are steeped in (and potentially wedded to) past decisions.
Adopting a mobility principle would allow staff rotations throughout
other WTO offices, bring new perspectives to appeals, reduce the
tendency to treat past decisions as precedent, and help restore an
appropriate balance of power between the Appellate Body members and the
Secretariat staff. It would also send a strong signal of an end to
business as usual.
To these changes, I would recommend an additional change to the
dispute settlement system with respect to trade remedy actions because
the lion's share of the United States' complaints about the WTO dispute
settlement system and its Appellate Body have stemmed from rulings
related to trade remedies. Therefore, my recommendation would be to
treat appeals of trade remedy decisions differently--either by creating
a specialized Appellate Body chamber to hear them or by eliminating--or
at least temporarily--freezing appeals from panel decisions in trade
remedy cases.
a. special appellate body for trade remedies
One option would be to create a special Appellate Body to hear only
appeals of trade remedy decisions. This special appellate institution--
call it the Rules Appellate Body--could be made up of members chosen in
large part because of a strong background in trade remedy law. The
selection process for members and the procedures of this Rules
Appellate Body could largely mirror those of the current Appellate
Body--and given that about half of all WTO disputes have been over
trade remedy matters, the workload of this Rules Appellate Body and of
the existing Appellate Body would be about even, so having
complimentary bodies of equal size would make sense.
A variation on this theme could be to simply add two or four
additional members to the existing Appellate Body who have deep trade
remedy expertise and insist that any three-member division hearing an
appeal of a trade remedy case would have to be made up of at least two
of these trade-remedy expert Appellate Body members.
b. moratorium on appeals from trade remedy panel decisions
A second approach to trade remedy disputes would be to establish a
moratorium on appeals from panel decisions--or even just to amend the
rules to make panel decisions on trade remedy matters final. The theory
behind such an approach is two-fold. First, panels examining trade
remedy decisions are already playing an appellate role and therefore
don't need a second or third level of review. Every trade remedy
measure that comes before the WTO's dispute settlement system must be
based on an investigation conducted by the investigating authorities in
each country--so there is already a factual record that has been
compiled and an existing decision that applies the law--including the
WTO rules--to those facts to reach a conclusion that trade remedies are
justified in the particular case at issue. As such, it may be
appropriate to allow the panel's decision to stand in for an appellate
report, and not subject such panel reports to further review.
The second reason for a ``no appeals of trade remedy panel
reports'' approach is that most of the controversial decisions of the
Appellate Body have been in the trade remedy area, so eliminating
appeal rights in this limited arena may suggest a major enough change
to break the current impasse over Appellate Body appointments. If so,
it would allow the process to move forward, to keep the Appellate Body
up and running for all non-trade remedy appeals and would maintain the
current consensus-based approach to the appointment of Appellate Body
members.
In terms of change to the underlying rules, I would recommend
seeking a definitive interpretation of certain key phrases using the
process set forth in Article IX.2 of the Marrakesh Agreement
Establishing the WTO. For example, a definitive interpretation could be
sought to the meaning of ``public body'' under the Agreement on
Subsidies and Countervailing Measures (ASCM) that would have the effect
of overruling the Appellate Body's decision that a ``public body'' is
an entity that exercises a governmental function, or the language in
the Agreement on Safeguards to clarify that it is not necessary to read
the phrase ``unforeseen developments'' into the requirements for
imposing a safeguard. Alternatively, changes could be sought to add a
clear standard by which investigating authorities' decisions were
reviewed by panels to ensure an appropriate amount of deference to the
expertise and discretion of national authorities conducting trade
remedy investigations.
______
Questions Submitted by Hon. Ron Wyden
Question. The Trump administration has a track record of turning
its back on international institutions, and does not seem in a hurry to
seriously engage in WTO reform. You have had a long career representing
U.S. trade interests. You administered U.S. trade remedy laws--laws
that protect American workers--at the independent International Trade
Commission and you also spent some time at the WTO on the Appellate
Body.
From your experience, do you agree there are real problems with the
Appellate Body, where it has disregarded rules that apply to it, and
creates new obligations to the detriment of the United States,
particularly with respect to U.S. trade remedy laws that are in place
to protect American workers?
Answer. Yes. It is in the area of trade remedies in particular
where the dispute settlement system has rendered a number of decisions
that were contrary to the legitimate expectations of the United States
at the time that the Uruguay Round Agreements Act was being considered
and passed by the Congress. Whether it is the series of disputes in
which the Appellate Body outlawed the previously long-standing practice
of ``zeroing'' in the calculation of anti-dumping margins, or the
decision to read into the WTO's Safeguards Agreement a requirement that
safeguards can only be imposed if there is evidence that the increase
in imports occurred as a result of ``unforeseen developments,'' or the
decision to determine that the entities that are capable of providing
subsidies are only those entities which engage in ``governmental
functions,'' it is clear that the decisions that are at the heart of
the United States' substantive concerns about the WTO Appellate Body
are those in the trade remedy arena, where as you note in your
question, the decisions of the Appellate Body have worked to the
detriment of the application of U.S. trade remedy laws. As noted in my
answer to Senator Grassley above, addressing the problem would best be
done both through changes to the dispute settlement system and through
changes (either through definitive interpretations or actual amendments
to the existing texts) to the underlying trade remedy agreements--the
Agreement on Safeguards, the Agreement on Subsidies and Countervailing
Measures, and the Agreement on Antidumping.
Question. The Trump administration is walking away from the
enforcement tools at the WTO. There are virtually no new U.S. offensive
cases, and there is no movement on reform.
Do you think adequate reforms are achievable to ensure that the WTO
agreements operate as they were originally intended, and could you give
some concrete examples of what those reforms would be?
Answer. Yes. I believe the Trump administration's failure to
utilize the WTO as a tool to go after trade barriers and unfair
practices by our trading partners coupled with its destruction of the
Appellate Body without any plans to fix it have left the United States
in a much weaker position. The Obama administration filed 22 cases,
including 13 against China, to protect the right of American exporters
to overseas markets under WTO rules. The Trump administration, by
contrast, over the course of 4 years has filed only two new cases
(except those complaining about retaliatory tariffs put on in response
to unilateral U.S. tariffs) with one of the two directed at China. As
outlined in my answer to Senator Grassley above, I believe the WTO
Appellate Body could be fixed with three specific actions--the adoption
of the Walker Principles to address specific U.S. concerns about the
Appellate Body; the creation of an oversight process to ensure that the
Appellate Body adheres to those Principles; and a rotation of staff
serving Appellate Body members. These actions could be supplemented by
changes to the approach to trade remedies as also noted in my response
to Senator Grassley. Collectively, these reforms would allow the WTO
dispute settlement system to function as originally intended, giving
the United States a proper forum to enforce our trading rights.
Question. In addition to the impasse in dispute settlement, the
negotiating function of the WTO has also produced few results in recent
years. The areas in critical need of updating include disciplines
addressing subsidies and state-owned enterprises. We have learned that
existing disciplines just are not enough to address the depth of the
market-distorting practices that countries such as China engage in to
the detriment of U.S. workers and businesses.
What do you see as the path for addressing these issues at the WTO?
Answer. You are correct that among the biggest weaknesses of the
WTO is the inability to discipline subsidies or to rein in the
practices of China's state-owned enterprises. The failure largely stems
from three flaws in the WTO rules:
(1) The definition of a subsidy is too narrow. Right now, subsidies
are defined as financial contributions by a government or public body
that confer a benefit and are specific to a given company or sector.
With the Appellate Body's further narrowing of the term ``public body''
to include only those entities performing a governmental function,
China's state-owned enterprises were effectively carved out of
discipline under the WTO's Agreement on Subsidies and Countervailing
Measures (ASCM).
(2) The evidentiary burdens are too high in terms of proving the
existence of a subsidy, the benchmark against which the contributions
can be compared in order to show that a benefit has been provided, or
that a subsidy is specific.
(3) The remedies are ineffective. Under the WTO rules, there are
two remedies against subsides: (a) the application of countervailing
duties if the subsidized imports are coming in to the U.S. market or
(b) an adverse effects ruling if U.S. companies are competing with
subsidized imports in third-country markets. The problem with
countervailing duties (when they can be shown despite the definitional
and evidence problems noted above) is that they can push subsidized
goods out into other markets, which keeps world prices low and does not
address the underlying unfairness and over production caused by the
subsidies in the first place. The problem with an adverse effects
ruling is that WTO remedies are prospective only, so China only has to
remove the effect of the subsidy on a going-forward basis, which is
often far too late to do much good for American companies competing
with subsidized products.
The best path for addressing these problems is one that includes
working with our allies that share American concerns over China's
unfair practices. For example, good work has begun as part of a
trilateral cooperative process with Japan and the European Union to
develop new disciplines on subsidies.\2\ What is needed now is American
leadership that can be trusted by Japan and the EU to finalize the new
rules to the benefit of all, then developing sufficient leverage with
respect to China coming from all three parties to push China to accept
the new rules and finally working to bring them into the WTO system.
---------------------------------------------------------------------------
\2\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2020/january/joint-statement-trilateral-meeting-trade-
ministers-japan-united--and-european-union.
______
Question Submitted by Hon. John Cornyn
Question. I recently held a hearing on the Trade Subcommittee that
focuses on censorship as a non-tariff barrier to trade. Countries like
China censor American digital content, block our tech companies from
operating in the country, and retaliate against American firms. More
and more, our companies are self-censoring to do business in China.
Meanwhile, we allow Chinese-owned companies like Tik Tok and others
to operate in the U.S. freely. There is a clear lack of reciprocity.
One witness testified that censorship has cost three tech companies
alone over $34B in lost revenue. In the past, countries used to block
their maritime ports to stop the trade of goods. Today, countries do
the same using firewalls and filters to block data and digital trade
flowing through an underwater network of submarine cables.
Can you discuss how the WTO Appellate Body has treated censorship
in the past and how it might do so going forward, especially as it
relates to the exceptions for things such as public morals and national
security?
Answer. There have been few cases brought before the WTO where the
Appellate Body has ruled on the issue of censorship, the most notable
being the 2007 case between the United States and China concerning
publications and audiovisual products.\3\ In that case, the U.S.
challenged a series of Chinese measures regulating activities relating
to the importation and distribution of certain publications and
audiovisual entertainment products, contending that China's
restrictions violated a number of commitments China made when it joined
the WTO providing a right for American films, music, books and
publications to be exported to, distributed and sold in China. China
claimed that some of its restrictions, including censorship, were
``necessary'' to protect the public morals of Chinese citizens (GATT
Article XX(a)), but the panel and the Appellate Body rejected China's
defense. However, because this case did not raise the basic question of
whether Internet censorship is a trade barrier or a violation of the
WTO rules, there has not yet been a definitive ruling on the issue you
raise.
---------------------------------------------------------------------------
\3\ https://www.wto.org/english/tratop_e/dispu_e/cases_e/
ds363_e.htm.
Going forward, I believe a strong case could be made that China's
practices violate its national treatment and MFN obligations to treat
all foreign companies the same and no worse than it treats Chinese
companies because China's censorship policies are not applied even-
handedly. Foreign companies, particularly American companies, are
treated worse than Chinese companies, which violates China's basic non-
discrimination obligations. Similarly, China's guidelines for what can
and cannot be published or posted on-line and its basic censorship
rules are not transparent or published, which may also be a violation
of China's obligations under GATT Article X and GATS Article III. In
addition to bringing a WTO dispute against China's practices, the
United States could lead an effort for clear rules related to
censorship to be included as part of the e-commerce/digital trade
---------------------------------------------------------------------------
negotiations currently underway at the WTO.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. So far, the U.S. has mainly relied on unilateral tariffs
under section 301 to push for market-oriented reforms to the Chinese
market, but these measures hurt Americans, while not having much effect
on Chinese trade practices. But this is not the only way to try and
encourage China to adopt reforms--the U.S. can also work with key
allies and use the WTO rules to encourage China to adopt reforms.
While the WTO may need reform in some key areas, the fact remains
that it has historically been very successful when dealing with China.
Uncovering China's WTO violations is challenging but it can be done,
and the U.S. can use the WTO to hold China accountable, in particular
in relation to the areas of intellectual property protection, forced
technology transfer, and subsidies.
How can the U.S. better utilize the WTO dispute settlement system
in addressing the challenges with China's non-market trade policies?
Answer. To address the wide array of concerns with China, I believe
the best approach would be a big, bold, comprehensive case at the WTO
filed by a broad coalition of countries that share the United States'
substantive concerns about China.
First, a broad and deep WTO case represents the best opportunity to
bring together enough of the trading interests in the world to put
sufficient pressure on China to make it clear that fundamental reform
is required if China is to remain a member in good standing in the WTO.
The U.S. needs to use the power of collective action to impress upon
both China and the WTO how significant the concerns really are. The
United States simply cannot bring about the kind of change that is
needed using a go-it-alone strategy. A coalition case also has the
potential to shield its members from direct and immediate retaliation
by China.
Second, a comprehensive WTO case would restore confidence in the
WTO and its ability to address fundamental flaws in the rules of the
trading system. As U.S. Ambassador Dennis Shea put it, ``If the WTO
wishes to remain relevant, it must--with urgency--confront the havoc
created by China's state capitalism.''\4\ If the WTO can be seen to be
able to apply or, where necessary, amend its rules to take on the
challenges presented by China's ``socialist market economy'' framework,
then faith in the institution and its rules-based system can be
enhanced, for the good of the United States and the world.
---------------------------------------------------------------------------
\4\ Statement as delivered by Ambassador Dennis Shea, Deputy U.S.
Trade Representative and U.S. Permanent Representative to the WTO, WTO
General Council, Geneva, May 8, 2018.
The idea of bringing a broad, coalition-based case against China--
both for specific violations and for its nullification and impairment
of legitimate expectations that the United States and the other members
of the WTO had at the time China joined the WTO--was endorsed in a
recommendation to the Congress contained in the U.S.-China Economic and
Security Review Commission's November 2018 Report to Congress.\5\ The
Commission specifically recommended that Congress examine whether USTR
``should bring, in coordination with U.S. allies and partners, a `non-
violation nullification or impairment' case--alongside violations of
specific commitments--against China at the World Trade Organization
under Article 23(b) of the General Agreement on Tariffs and Trade.''\6\
---------------------------------------------------------------------------
\5\ https://www.uscc.gov/sites/default/files/annual_reports/
2018%20Annual%20Report%20to
%20Congress.pdf.
\6\ Commission Recommendation 2, page 21, Executive Summary and
Recommendations, 2018 Report to Congress of the U.S.-China Economic and
Security Review Commission.
Question. For those areas of contention that are not well covered
by WTO rules, such as state-owned enterprises, how can the United
---------------------------------------------------------------------------
States work with our allies within the WTO to develop new rules?
Answer. As noted in my answer to Ranking Member Wyden above, I
agree with you that the rules do not do a good job of addressing the
problems created by China's large and growing state-owned enterprises.
As noted above, I believe that the trilateral cooperative process with
Japan and the European Union represents a good start in the process of
developing new disciplines on subsidies and state-owned enterprises.\7\
What is needed now is American leadership that can be trusted by Japan
and the EU to finalize the new rules agreed to as part of the
trilateral process, then developing sufficient leverage with respect to
China coming from all three parties to push China to accept the new
rules and finally working to bring them into the WTO system.
---------------------------------------------------------------------------
\7\ https://ustr.gov/about-us/policy-offices/press-office/press-
releases/2020/january/joint-statement-trilateral-meeting-trade-
ministers-japan-united--and-european-union.
Question. What are the limits of the WTO in dealing with China, and
---------------------------------------------------------------------------
how can the U.S. help facilitate reforms to strengthen it?
Answer. The biggest limits for the WTO in dealing with China is
that the WTO can only apply rules that have been agreed to, and the
enforcement of those rules often requires countries to bring disputes
before the WTO dispute settlement system. The problem now is two-fold:
(1) as a result of the U.S. blocking appointments to the WTO Appellate
Body, there is no longer a binding dispute settlement system that can
hold China to the commitments it has already made--if the U.S. brings
and wins a case against China, China can avoid a formal requirement to
comply by filing an appeal to the non-existent Appellate Body; and (2)
the WTO does not have effective rules to address some of the systemic
problems with China, particularly its use of subsidies and state-owned
enterprises, the increasing levels of control over the economy by the
Communist Party of China, and the lack of anti-trust/
competition or bankruptcy laws that would impose market-based
disciplines over the Chinese economy. Addressing those issues will
require new rules to be negotiated and agreed upon by WTO members, at a
time when reaching any new trade agreements has been very difficult.
Question. There have been two recent cases at the WTO that have
challenged the broad applicability of GATT Article 21, the ``national
security exception'' in the WTO.
A new ruling (July 2020) by the World Trade Organization in a case
brought by Qatar against Saudi Arabia, stated that Saudi Arabia cannot
use national security as an excuse for failing to protect the
intellectual property of Qatari rights holders from rampant piracy of
their broadcast rights for sports, movies, and television programming.
Additionally, a 2018 case between Russia and Ukraine clarified the
limits of ``national security'' as a defense for breaking WTO rules
against unjustified tariff barriers to trade, stating that any such
claim should be ``objectively'' true, relating to weapons, war,
fissionable nuclear materials or an ``emergency in international
relations.'' Notably, the panel in the Russian transit case--as
mandated by the WTO treaty--drew on the ``customary rules of
interpretation of public international law'' in noting that treaties
must be upheld in ``good faith'' by those that are parties to them. On
this basis, the panel in that case concluded that governmental actions
for which a national security exception is claimed must ``meet a
minimum requirement of plausibility in relation to the proffered
essential security interests.''
Under international law, these two panel rulings apply only to the
parties to these disputes and to the measures addressed in them, so
they would not directly impact the United States. However, do you
believe that these rulings used sound reasoning, and should discourage
countries from the increasing trend of misusing a ``national security''
justification for policies that have little to do with national
security?
Answer. I hope so. At its core, the decision in the Russia-Ukraine
dispute (DS512) found that invoking the national security exception for
violations of the GATT (GATT Article XXI) requires a demonstration that
justified ``essential security'' measures must fall within one of the
three classes listed in the text of Article XXI(b): (i) fissionable
materials; (ii) arms, ammunition, and implements of war; or (iii)
measures taken in a time of war or other emergency in international
relations. It also found that the phrase permitting a country to take
any action which ``it considers necessary for the protection of its
essential security interests'' gives wide latitude to countries to
determine for themselves what it is in their essential interest, but
that the phrase it still bounded by principles of good faith. I believe
the reasoning behind both of these interpretations is sound and likely
to be followed.
The decision in the Qatar-Saudi Arabia dispute over Saudi Arabia's
refusal to prosecute those pirating sports broadcasts from legitimate
operators in Qatar included an agreement by both parties to follow the
reasoning and the analysis in the Russia-Ukraine dispute noted above.
Because the national security language in Article XXI(b) and in TRIPs
Article 73 that was at issue in the Qatar-Saudi dispute is exactly the
same, I believe the reasoning is fairly widely accepted, including the
limits placed by the requirement to act in good faith, which precludes
the use of the security exception as a means to circumvent WTO
obligations.
Question. One area of concern that many have with the WTO is the
current treatment of ``developing country status,'' or ``special and
differential treatment.'' SDT was meant to help the poorest WTO members
meet their obligations to the fullest extent possible, and gives
``developing'' countries more time to implement obligations,
preferential tariff schemes, and technical support from ``developed''
countries. However, nowhere in the WTO rules does it define what a
``developing country'' is, and as a result, members practice self-
declaration, whereby they alone decide their development status.
Thus, we are seeing that rapidly growing countries with significant
global reach lay claim to these special rights, due to members' ability
to ``self-declare'' their developing country status. This has led to a
situation where more advanced countries receive similar treatment to
those that are much poorer, undermining the initial rationale for SDT
to help those countries in most need with the transition to full
compliance. Except for least-developed countries, SDT also does not
differentiate between levels of development among developing countries,
and as a result, the poorest countries are made worse off, while those
that are economically better off receive a ``free ride'' from the rest
of the multilateral trading system.
Do you agree that the WTO should work to adopt a new evidence-
based, case-by-case approach to SDT to ensure both that the concerns of
the poorest countries are addressed and that advanced developing
countries carry their weight in the organization?
Answer. Yes.
Question. Advocates of reforming the SDT have suggested looking at
factors ranging from a country's economic measures (like economic
production or per-capita income), social measures (human development
index), or trade indicators (export levels, high-technology trade) to
define whether it is ``developed.'' How can we best define ``developing
country''?
Answer. I am not certain of the best approach, as whatever approach
is ultimately adopted will need to developed in a consultative process.
It is most likely that a combination of all three factors would have
the greatest chance of garnering more support. Currently, the WTO rules
do provide a definition for least-developed countries that follows the
United Nations determinations. Those UN designations are based on GNI
per capita, the UN's human assets index that takes into account the
prevalence of undernourishment, child and maternal mortality ratios,
secondary school enrollment and adult literacy rates, and economic
vulnerability. I believe the criteria for determining developing
country status should focus more on economic and trade-related factors
than those used by the UN to determine which countries qualify as
least-developed.
Question. Maximizing the effectiveness of the WTO through American
engagement and leadership is in the broad national interest as a means
to provide greater economic stability and prosperity. Detractors say
that the WTO system is ``rigged,'' but the fact remains that the United
States has won 85.7 percent of the cases it has initiated before the
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global
trade, and foreign markets are critical to our agriculture,
manufacturing, and service industries. Economists have found that the
U.S. withdrawing from the WTO would lead to diminished trade growth,
costly market and supply- chain disruptions, and the destruction of
jobs and profits, especially in import- and export- dependent U.S.
industries.
Can you speak to the projected effects of withdrawing from the WTO?
Answer. Withdrawing from the WTO could have a number of effects,
the largest of which could be discrimination against American goods,
services, and intellectual property once other countries are no longer
bound by the WTO rules against discrimination on the basis of origin
(MFN and national treatment requirements). An additional significant
effect could be the increase in chaos and confusion over what rules
apply to American exports, particularly if other countries chose to
impose different tariffs or different regulatory measures or different
customs procedures to American exports. Withdrawal from the WTO would
also cede U.S. leadership to others, most notably China. The U.S. would
no longer be at the table when new rules are developed, for example,
with respect to digital trade and e-commerce.
Question. Do you believe that the resulting trade barriers from
withdrawal from the WTO would compel some American companies either to
downsize or move offshore?
Answer. Yes. At their core, the WTO rules provide protection from
discrimination based on the origin of a good, service or intellectual
property right. If the United States withdraws from the WTO and other
countries decide to discriminate (or even threaten to discriminate)
against all things American, U.S. companies would have to consider the
cost to them of paying additional tariffs or being subject to different
regulations or to the loss of IP rights in determining whether they can
continue to operate with their goods, services or IP rights carrying a
``Made in America'' designation. Which industries would move and how
quickly would depend on other countries responses to a U.S. withdrawal
from the WTO, but the mere possibility of being closed out of other
markets because of a U.S. base of operations could prompt companies to
center their operations elsewhere.
______
Questions Submitted by Hon. Todd Young
Question. Over time, the World Trade Organization (WTO) has
deviated from its mission of negotiation and become plagued with
inefficiencies resulting in a lack of oversight over unfair trade
practices. While the WTO of years past contributed to increased
prosperity for the United States and other nations, the WTO of today
has enabled unfair trade practices particularly from China to cause
significant economic harm to American job creators and workers.
How has the WTO been insufficient in identifying, curbing, and
preventing China's use of unfair trade practices like IP theft and
forced digital transfer practices?
Answer. The problems in addressing IP theft and forced digital
transfer practices stem from a combination of an unwillingness to
challenge China through formal dispute settlement procedures, failures
on the part of the WTO to insist that China make timely notifications
of its subsidy and other trade-distorting practices, and insufficiency
of some of the rules themselves. The reluctance to bring specific
disputes against China may be due to concerns over retaliation by
China, the difficulty of obtaining sufficient evidence that can be
disclosed without inviting further retaliation, and the increasing
length of time it takes to complete WTO dispute settlement proceedings.
Question. How would you classify the WTO's inability to halt unfair
trade actions? Is this a result of systemic and pervasive flaws? Or,
should each failure be reviewed independently on a case-by-case basis?
Answer. A case-by-case analysis would give a better understanding,
as the reasons for the failure to confront China vary by industry (some
industries are more able to take on China if they are more confident
that China would not retaliate against them), by the nature of the
unfair trading practice (the rules for subsidies, as noted above, are
far less effective than rules in other areas) and by the underlying WTO
rules and commitments made by China when it joined the WTO (some are
quite specific while others are too vague to be clearly enforceable).
But underneath almost all of them is the pervasive and growing role of
the Communist Party of China in the economy of China in both overt and
subtle ways that is almost impossible to address through changes to the
trading rules.
Question. To what extent are administrative issues responsible for
the failed oversight of WTO, and should reform efforts center on these
or a more comprehensive strategy to improve the WTO?
Answer. At its core, the WTO has three main pillars: (1) a
negotiating pillar allowing the WTO to serve as the forum for the
creation of new trade rules and trade liberalization accords applicable
to its 164 members; (2) an executive function, with the WTO serving as
a central clearinghouse for tariff schedules, services commitments,
non-tariff measures and subsidy notifications, along with supporting
the important work of WTO committees; and (3) a dispute settlement arm
designed to resolve disagreements over whether countries have lived up
to their trade commitments. The problem is that the system is now badly
out of balance, as the negotiating process has broken down, unable to
reach any major agreements other than the Trade Facilitation Agreement
since the WTO was created in 1995. The executive function has been
hampered by the failure of many countries to provide timely
notifications of their measures and by its limited power in WTO's
member-driven system. The dispute settlement system, until its
Appellate Body was upended in December, was perceived to be very
strong--with nearly 600 requests for consultations to resolve
differences filed to date and countries throughout the world choosing
to resolve their disputes at the WTO rather than through free-trade
agreement or bilateral dispute settlement mechanisms. But that strength
has contributed to the lack of balance in the system, with USTR's
Ambassador Lighthizer noting ``the WTO is losing its essential focus on
negotiation and becoming a litigation-centered organization. Too often
members seem to believe they can gain concessions through lawsuits that
they could never get at the negotiating table.''
As a result, the reform efforts need to involve a comprehensive
strategy to restore the balance rather than a focus solely on
administrative issues.
Question. What policies can the United States take to proactively
seek to reform the Appellate Body to ensure a productive, transparent
dispute resolution process?
Answer. As noted above in response to the question from Chairman
Grassley, I believe the United States should seek a package of reforms
that includes the adoption of the Walker principles to address specific
U.S. concerns about the Appellate Body, the creation of an oversight
process to ensure that the Appellate Body adheres to those principles
and a rotation of staff serving Appellate Body members. These actions
could be supplemented by changes to the approach to trade remedies as
also noted in my response to Senator Grassley. Collectively, these
reforms would allow the Appellate Body to function in a manner
consistent with the original intent of the United States when it
championed its creation and would give the United States an effective
forum to enforce our trading rights.
Question. As problems with the WTO's lack of oversight and
inability to be effective have increased, the United States has rightly
brought these issues to light. However, other member nations have not
treated these infractions with the same vigilance and tenacity. There
is tremendous value in a multilateral response to hold China
accountable and nations could be persuaded to unite common interests
into a broader and more powerful complaint. Specifically, strategies
can include making a general IP challenge, addressing trade secret
theft and forced technology transfer, and countering subsidies.
How can the United States work with other member countries in order
to bring forward comprehensive and fact-based claims against China's
unfair trade practices?
How does China seek to undermine the United States' relationships
with other countries? How should the United States combat increased
investments or threatened retaliation?
What strategies can the United States use to build multilateral
support for broad-based challenges to China?
Answer. As noted above in the response to Senator Toomey, I believe
the best approach would be a big, bold, comprehensive case at the WTO
filed by a broad coalition of countries that share the United States'
substantive concerns about China. The case could include over a dozen
specific allegations of violations by China of its commitments under
its protocol of accession to the WTO or the WTO rules themselves (as
spelled out in my testimony before the Senate Foreign Relations
Committee),\8\ along with a non-violation claim under Article XXIII of
the GATT, focused on the myriad ways in which China's economy fails to
meet the Marrakesh Declaration that the WTO was designed as a world
trading system ``based upon open, market-oriented policies.''
---------------------------------------------------------------------------
\8\ https://www.foreign.senate.gov/imo/media/doc/
112718_Hillman_Testimony1.pdf.
Most WTO disputes have as their goal a ruling by the Dispute
Settlement Body that the measures complained about violate one or more
provisions of the WTO Agreements, after which the responding party
brings its measures into compliance, often by removing or amending the
offending measures. Here, while one of the goals of a big coalition-
based case would be to seek certain specific rulings of violations by
China across more than a dozen areas, the goals would be much broader:
(1) to seek a common understanding of where the current set of rules
are failing and need to be changed (with disciplines on subsidies at
the top of that list); (2) to begin the process of scoping out exactly
what those rule changes would look like to accommodate the views of the
broader WTO membership; (3) to seek recognition from China of where and
to what degree its economic structure can or cannot fit within a fair,
transparent and market-based trading system; and (4) to give China the
opportunity to make a choice that is its sovereign right to make--
whether it wants to change its system to one that does fit within the
---------------------------------------------------------------------------
parameters of the WTO or not.
The hope would be that both China and the coalition of parties to
the dispute would appreciate that the trading system is better off with
China as part of it, that the WTO rules are in some places and in some
ways part of the problem and need to be changed, but that tinkering at
the margins will not suffice.
Question. One area of significant concern with the WTO's failure to
issue corrective action is China's subsidization of its domestic
manufacturing. This undercuts U.S. businesses and manipulates the
global market. The campaign, ``Made in China 2025,'' was created under
the guise of advancing innovation in technology, but is really
government-sanctioned subsidies to businesses that purchase government-
approved goods from domestic suppliers. This subsidy regime has and
continues to have negative effects on foreign competitors--this is a
violation of WTO obligations. Personally, I have heard from a number of
constituent businesses in Indiana who suffer loss of market share
because of an inability to compete with artificially low prices from
China.
What tools at the WTO can be used to address Chinese subsidization
of their domestic manufacturing?
How should the United States use the functions at the WTO to
correct this consistent and manipulative behavior from China?
If the Chinese are not held accountable from a multilateral
consensus, what will the future hold for American manufacturers?
Answer. As noted above in my response to Ranking Member Wyden's
question, I believe that among the biggest weaknesses of the WTO is the
inability to discipline subsidies or to rein in the practices of
China's state-owned enterprises. Fixing the problem likely requires a
change in the rules around subsidies themselves and a better mechanism
to hold China to account for its failures to rein its subsidies and to
expand the reach of its state-owned enterprises.
One possible option is for WTO members to create categories of
``permitted'' or ``green light'' subsidies that would fall outside the
scope of the ASCM disciplines, ``red light'' or prohibited subsidies,
and ``amber light'' subsidies for all others. Doing so would provide
policy space for members to negotiate the types of subsidies in each
category, particularly for ``green light'' subsidies, which could
include those that promote the public good or are directed at
addressing climate change. Establishing an amber box--which would
include subsidies that likely distort production and trade--would
require a commitment by members to limit their total spending on such
subsidies, with the largest subsidizers potentially committing to
reduce their amber light subsidies over a set time period.
A second option is to expand the list of prohibited subsidies.
Because prohibited subsidies have both a clearer and faster remedy than
merely actionable subsidies, expanding their list could add teeth to
the ASCM. Currently, ASCM Article 3 limits prohibited subsidies to
export subsidies or subsidies contingent on the use of domestic
products over imports. If certain subsidies that are considered more
trade distortive, such as those leading to substantial global
overcapacity, could be defined and added to Article 3, it would
strengthen the ASCM.
Changes are also necessary to redefine ``government or public
body'' and to address the evidence problem by establishing a set of
rebuttable presumptions for countries that believe they have suffered
as a result of another member's subsidies.
Failure to adopt new rules and new mechanisms to hold China to
account will leave U.S. companies competing against low-priced,
unfairly trading imports and will keep prices in the world suppressed
due to the overproduction emanating from China's heavily subsidized
industries. Achieving meaningful disciplines on China will require
working with our allies, as pressure from the U.S. alone will not be
sufficient, either to establish new rules or to enforce them.
______
Questions Submitted by Hon. Sheldon Whitehouse
Question. Professor Hillman, as a former member of the WTO's
Appellate Body, you are well-placed to discuss what sorts of trade
regulations would pass muster with the WTO.
Could a carbon border adjustment could be constructed in such a way
so as to be WTO-compliant, and if so, what would such a regime look
like?
Answer. Yes. The United States has a right under applicable WTO
provisions to assess a carbon-related tax or a charge on imports--a
carbon border adjustment (CBA)--provided such a CBA does not exceed the
amount of the tax imposed on similar U.S. products. The key is to
structure any CBA as a straightforward extension of the domestic
climate policy to imports and to ensure that the amount of the CBA
imposed on the imported goods does not exceed the amount of the tax on
the domestically produced products. If so designed, there should be few
questions about the measure's consistency with the WTO rules. Even if
questions were raised, the United States would have strong defenses
within the WTO system (Article XX of the GATT). And even if those
defenses were somehow to fail, the United States would be able to make
adjustments should some aspect of its carbon tax system be found
wanting. A non-discriminatory tax enacted in good faith to address
climate change should readily pass muster with the WTO.
Question. Some have expressed concern that a carbon fee would
disadvantage American heavy industry.
Could a carbon border adjustment be designed in such a way so as to
protect American heavy industry, and if so, what would such a border
adjustment mechanism would look like?
To the extent that Chinese heavy industry is on average more
carbon-intensive than U.S. heavy industry, would a carbon border
adjustment provide U.S. industry with an advantage over Chinese
industry exporting to the U.S.?
Answer. Yes, a CBA can be designed to ensure that energy-intensive
American industries are protected from unfair competition from
industries in countries that have no carbon tax or carbon-pricing
system in place or are made using a more
carbon-intensive process. The easiest and fairest way to do so is to
assess the tax (both the domestic tax and the CBA tax on imports) on
the basis of the amount of greenhouse gas (GHG) emissions consumed in
the production of the product being made or imported. If the tax were a
set amount per ton of GHG consumed per ton of product produced, then
U.S. producers with a more carbon-efficient process would pay a
domestic tax that is less per ton of product produced than the amount
of the tax that would be paid by importers per ton of product imported
if those imports were made using a more carbon-intensive process.
Question. The European Union is considering implementing a carbon
border adjustment regime.
Could the EU do so in compliance with WTO rules, and if they did,
would U.S. exporters to the EU be obligated to pay the border
adjustment fee?
Answer. Yes, it is possible, but will be extremely difficult, for
the EU to impose a WTO-consistent border adjustment fee on imports to
the EU from the United States. The reason that it will be so difficult
is that the EU does not impose a carbon tax on its own EU producers.
Instead, the EU has an emissions-trading system (ETS) in place that
requires EU companies to reduce emissions by set amounts; if they
cannot do so, they must purchase emissions-trading permits. The problem
is that for a border adjustment fee to be lawfully applied, the EU must
show that the amount of the import fee is equivalent to what EU
companies effectively pay under the ETS. However, objective standards
do not exist either to determine the equivalent price of the EU's ETS,
or to provide credit based on an equivalent price for the portfolio of
policies in nations that export GHG-intensive products to the EU. In
addition, ETS requirements are applied to production facilities in the
EU, while a CBA would be applied to imported products, making a
comparison between the two to ensure equivalence very difficult.
Moreover, the ETS does not prescribe a specific price for emissions
allowances; rather it establishes a market-based process that results
in a variable, at times volatile, allowance price for emissions.
Devising objective methods to address the time-dependent allowance
price and assign it to a fixed import charge for specific products
would also be extremely challenging.
Question. If the U.S. implemented a carbon price equal to or
greater than the average price for EU emissions allowances, would U.S.
exporters still have to pay the EU border adjustment fee?
Answer. The answer depends on whether the EU's border adjustment
scheme provides for such an offset but the initial descriptions of the
EU's scheme suggest that an offset will be included.\9\ If that is the
case, then yes, the adoption of a carbon tax in the United States
should exempt U.S. exports to the EU from the EU's CBA.
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\9\ https://www.bcg.com/publications/2020/how-an-eu-carbon-border-
tax-could-jolt-world-trade.
Question. Together with Senators Schatz, Heinrich, and Gillibrand,
last year I reintroduced the American Opportunity Carbon Fee Act. My
bill includes a border adjustment mechanism to protect U.S.
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manufacturers.
In your view, is my bill WTO-compliant, and would it protect U.S.
manufacturers from unfair foreign competition?
Answer. Yes, I believe your bill is WTO-compliant, and yes, it
would protect U.S. manufacturers from unfair competition from foreign
producers that do not face a comparable carbon tax or carbon pricing
system. While some initial methodological issues will arise, I believe
that the tools and the data to demonstrate that an import fee imposed
as a border adjustment in your bill is equivalent to the amount of the
tax effectively paid by U.S. producers of similar goods exist such that
an equivalence demonstration can be made. It is a showing of comparable
taxes being paid by U.S. producers and importers that is necessary to
demonstrate WTO compliance. Because your bill assumes that both the tax
paid by U.S. producers and the tax paid by importers is based on the
amount of GHG emissions burned in the production of a particular good,
more energy-efficient U.S. producers will pay a smaller carbon tax per
ton of product produced than comparable imports made by a foreign
manufacturer that burns more GHGs to product the same ton of a given
product. As such, your bill protects U.S. manufacturers from having to
compete directly with goods produced in countries that do not impose a
carbon tax or other carbon pricing system.
______
Prepared Statement of Michele Kuruc, Vice President,
Ocean Policy, World Wildlife Fund
The details of what has transpired during 20 years of negotiations
at the World Trade Organization (WTO) on harmful fisheries subsidies is
hardly riveting storytelling. But the inability to successfully
conclude the negotiations and reach an agreement to date has been
extremely frustrating, as we've had to witness the concurrent decline
in the health of the world's ocean, fueled in large part by harmful
subsidies funding too many boats chasing too few fish. Our oceans are
rife with illegal fishing, (estimated at 36.4 billion USD per year
\1\), overfishing (more than 80 percent of the world's fish stocks are
overfished, or at capacity \2\) and overcapacity (over 3 million
fishing vessels are estimated to fish in marine waters and there are
not enough fish for all of them \3\). All those detrimental activities
are furthered by subsidies.
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\1\ 2017, Transnational Crime and the Developing World. Global
Financial Integrity.
\2\ 2020, State of the World's Fisheries and Aquaculture, FAO.
\3\ Id.
On a global level, subsides to fisheries are estimated to be 35.4
billion USD \4\ annually. The top five subsidizing entities are China,
the EU, the U.S., Republic of Korea, and Japan.\5\ Not all subsidies
are considered harmful, cause damage to fish stocks, or thwart
sustainability. But those which are considered harmful comprise the
majority, with $22.2 billion classified as harmful.\6\ These harmful
subsidies take many forms such as fuel, tax breaks, and capacity
enhancement, which drives overcapacity of fleets and overfishing, and
worsen the unsustainable, downward cycle. Many examples of the damaging
impacts of these subsidies are found in the attachment to this
statement.
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\4\ 2019, Updated Estimates and Analysis of Global Fisheries
Subsidies, U. Rashid Sumalia, Marine Policy.
\5\ Subsidizing the Extinction of Fish and Fisheries, U. Rashid
Sumalia, webinar presented at The Link Between Fisheries Subsidies at
the WTO and Small-Scale Fisheries, Pew Charitable Trusts, July 13,
2020.
\6\ Id.
Inappropriate subsidies not only harm the environment, they
directly promote unfair trade and even contribute to geopolitical
strategies of economic control. China, for example, has the world's
largest distant water fishing fleet--a fleet that in multiple oceans is
used not only for fishing but for projecting Chinese maritime power.
That fleet is supported by subsidies allowing these Chinese boats to
roam the world's oceans to prey on weaker nations and flaunt many laws
designed to keep fish stocks at sustainable levels and available to
support our collective future. China gives more capacity-enhancing
(harmful) subsidies than any other nation. Of the $22.2 billion in
annual harmful subsides, China supplies about one-quarter.\7\
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\7\ Subsidizing the Extinction of Fish and Fisheries, U. Rashid
Sumalia, webinar presented at The Link Between Fisheries Subsidies at
the WTO and Small-Scale Fisheries, Pew Charitable Trusts, July 13,
2020.
Subsidies are often claimed to be essential to help small-scale
fishers, those in poverty, or only impact fishing within one country's
waters. None of that withstands scrutiny. Large-scale fishing
operations receive 84 percent of subsidies globally while small-scale
operators receive only 16 percent.\8\ Subsidies artificially expand the
number of vessels and fuel overcapacity, contributing to declines in
the entire sector's productivity and making it harder for those who
depend on fishing to support their livelihoods, especially those
already struggling at the margins. Subsidies support illegal fishing
activities as well and are thought to provide 1.8-3.7 billion USD \9\
to do so.
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\8\ Id.
\9\ https://www.economist.com/leaders/2017/12/19/a-shameful-
failure-to-tackle-overfishing.
Harmful subsidies undermine fisheries management. And, we will not
enforce our way out of these problems. Robust enforcement is certainly
an important tool, but an agreement is needed that puts an end to
subsidies that perpetuate an attractive value proposition for
overfishing and overcapacity. Only the WTO can deliver that agreement.
Funds that fuel harmful subsidies ought to be re-directed to improving
fisheries management, a far better investment. Research on subsidies
reform using 30 case studies worldwide indicates that reorienting
subsidies away from capacity-enhancement, and/or conditioning them on
specific sustainable performance metrics had the best economic and
ecological outcome in terms of fishery performance.\10\ The World Bank
estimates that effective management of global marine fisheries and the
recovery of fish stocks would yield increased revenues of $83 billion a
year. In the United States our own fisheries management is strong but
in many other parts of the world this is not the case. But continued
poor fisheries management coupled with subsidized overfishing is not
only putting law abiding fishers at a commercial disadvantage but is a
recipe for larger-scale economic and biological disasters and
compromised food security.
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\10\ Andres M. Cisneros-Montemayor et al. Strategies and rationale
for fishery subsidy reform. Marine Policy 69, 229-236. 2016.
Status of negotiations. After COVID-related delays, a chair's text
was recently distributed which is seen by many as a good basis for
moving forward and text-based negotiations will resume in September,
in-person and virtually. Although the talks are behind the initial
December 2019 deadline, linked to the UN's Sustainable Development
Goals, they may conclude by the end of 2020 or they may await the
ministerial-level political negotiation that is likely to be back on
the schedule in the first half of 2021.\11\
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\11\ July 21, 2020, Inside Trade.com, WTO to Start Text
Negotiations in Fall; U.S. sees ``missing pieces.''
Prospects. And if we end up with an agreement, what sort of
agreement might it be? There are many issues that are unresolved around
key definitions, the scope of an agreement, what and who may be covered
and who decides major determinations, application of various formulas
and timing issues. The United States has established a high ambition
outcome and has held to that while listening to and discussing the
proposals of others. This is a characteristic of U.S. leadership, but
the next few months will likely determine whether WTO members can come
away with an effective agreement or not. Many who have been long-time
WTO watchers in this space say they feel there is reason to be
optimistic on successfully concluding the negotiations this time, as
this is the closest they've come in over a decade to actually reaching
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an agreement.
Role of the U.S. We have excellent negotiators and they should stay
the course and determine when and if compromises are needed. But this
issue is also about the strength and value of the WTO as an
institution. The WTO is specifically mandated to end harmful subsidies
generally, and, after 20 years of preparatory debate, it is uniquely
postured to put the kibosh on harmful fisheries subsidies in
particular. But only continued and strong U.S. leadership can bring the
WTO to delivering this long overdue result. And the time is now to pay
attention to this issue once again.
We also need to address unfair trade practices, and this means
import control rules that identify and prevent illegal fish products
from entering our lucrative U.S. market. The U.S. seafood import
monitoring program (SIMP) is a useful start, but it only includes 40
percent (by volume and value, it includes 13 species) of our
imports.\12\ Other major importing countries are considering following
the U.S. lead, and collectively we can shut off the IUU tap if we do it
right, and expand SIMP to include all species in our program's
coverage. Notwithstanding the SIMP import screening, approx. $1 billion
in IUU products are still entering the U.S. Further, a consistent
interpretation of IUU in U.S. regulations needs to be applied that will
allow the U.S. more tools to address countries that are intransigent
bad actors. It is important for the U.S. to work to address unfair
trade practices--subsidies and IUU fishing--that are harming the
environment, fisheries and U.S. fishermen and our seafood industry.
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\12\ 81 FR 88975, Final Rule, Seafood Import Monitoring Program,
December 9, 2016.
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ending harmful fisheries subsidies:
it is vital for the wto to take action now
The crisis of depletion affecting fisheries worldwide is one of the
defining environmental and social challenges of our times.
The well-documented harmful impact of certain forms of fisheries
subsidies on the environment and the health of fish stocks, and the
consequences for the economic stability of fishing communities, has
been subject of discussion within the WTO for 2 decades. It is now high
time for WTO members to take effective action to secure healthy oceans
and sustainable livelihoods for the years to come.\13\
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\13\ Through Sustainable Development Goal 14.6 the global community
has committed to banning harmful fisheries subsidies by 2020. SDG 14.6:
``By 2020, prohibit certain forms of fisheries subsidies which
contribute to overcapacity and overfishing, and eliminate subsidies
that contribute to IUU fishing, and refrain from introducing new such
subsidies, recognizing that appropriate and effective special and
differential treatment for developing and least developed countries
should be an integral part of the WTO fisheries subsidies
negotiations.''
Over a billion people depend on fish as their primary source of
protein and a hundred million are directly dependent on fishing for
their livelihoods. But the productivity of wild capture fisheries has
been flat since the late 1980s despite dramatic growth in global
fishing capacity. One-third of assessed global fish stocks are now
overfished,\14\ promoted by subsidies and exacerbated by illegal,
unreported and unregulated (IUU) fishing. Another 60 percent of stocks
are fished at levels that can no longer support increases in catch,
meaning that well over 90 percent of stocks are either fully fished at
their biological limits or are overfished.
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\14\ SOFIA 2018, FAO.
Massive global subsidies help drive this depletion because they
provide economic incentives for fishing even when it is not profitable.
Subsidies also fund the overcapacity that undermines best efforts to
fish sustainably and to limit bycatch and habitat destruction. Because
of the largely unconstrained pressures on the ocean's resources, each
dollar of taxpayer funds used to support fishing today places enormous
costs on the environment and the well-being of future generations.
the need to curtail fisheries subsidies
Recent analysis of the extent of global subsidies indicates that
over $22 billion was spent in 2018 on capacity-enhancing subsidies,
representing an astounding 17 percent of the value of the fish
caught.\15\ Fuel subsidies topped the list at nearly $8 billion.\16\
China alone provides over 25 percent of the capacity-enhancing
subsidies provided globally, followed by Japan and the EU with over 9
percent each. Other significant subsidizing countries include Korea,
Russia, the United States, and Thailand.
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\15\ FAO Status of World Fisheries. 2016 fisheries production was
$130 billion.
\16\ Sumaila, R. et al. Updated estimates and analysis of global
fisheries subsidies. Marine Policy 109 (2019) 103695, https://doi.org/
10.1016/j.marpol.2019.103695.
Recent research comparing mapped vessel movements against the cost
of labor and fuel suggests that as much as 54 percent of high seas
fishing may be unprofitable in the absence of government subsidies.\17\
The high seas fleets of China (35 percent of high seas catch), Taiwan
(12 percent) and Russia (4 percent) are all operating at a loss.
Nonetheless, industrial fishing on the high seas is a relatively small
portion of global fishing, accounting for only 6 percent of all fishing
activity.\18\ The vast majority of fish are found and caught within
countries' national jurisdictions.\19\
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\17\ Sala et al., Science Advances June 6 2018. The economics of
fishing the high seas, http://advances.sciencemag.org/content/4/6/
eaat2504.full.
\18\ Ibid.
\19\ An estimated 88 percent of marine catch is from within
national jurisdictions. U. Rashid Sumaila, Vicky W.Y. Lam, Dana D.
Miller, Louise The, Reg A. Watson, Dirk Zeller, William W.L. Cheung,
Isabelle M. Cote, Alex D. Rogers, Callum Roterts, Enric Sala, and
Daniel Pauly. Winners and losers in a world where the high seas is
closed to fishing. Scientific Reports 5, 8481. 2015.
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the harmful effects of fisheries subsidies
A report by the Organisation for Economic Co-operation and
Development (OECD) found subsidies that reduce the cost of fishing
through financial support for fuel, gear, or bait expenditures, are the
most likely to increase both legal and illicit fishing effort,
potentially leading to stock depletion.\20\
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\20\ Martini, R. and Innes, J. ``Relative Effects of Fisheries
Support Policies,'' OECD Food, Agriculture, and Fisheries Papers No.
115. 2018, http://dx.doi.org/10.1787/bd9b0dc3-en.
Fuel subsidies encourage the wasteful use of fuel. They also
maintain uneconomic and environmentally destructive fishing practices,
such as deep-sea trawling, and distort the competition between large-
scale, fuel-intensive fishing vessels and small-scale vessels using
passive gear. To the extent that fishing capacity remains in use
because of these fuel subsidies, the necessary restructuring of the
sector through capacity reductions is prevented. In turn, the chronic
excess capacity that exists in most countries creates powerful
interests in support of ongoing subsidies and continued high fishing
---------------------------------------------------------------------------
quotas, leading to persistent overfishing.
Examples of the negative impact of fisheries subsidies abound. In
the Mediterranean, one of the world's richest bluefin tuna fisheries
was shut down in the 1990s, being the target of overfishing by heavily
subsidized fleets, and only with recent management measures in place
have slowly recovered; in the North West Atlantic, the historic cod
fishery was closed after years of subsidized overfishing; in the
Western and Central Pacific and the Indian Ocean, tuna and other
valuable stocks face increased pressure as subsidized competition
pushes fleets into fisheries far from their traditional grounds; off
the coasts of Africa and in the South Pacific, local fishermen compete
with subsidized foreign vessels, many fishing illegally.
In Ghana, subsidized foreign fishing vessels engage in a practice
known as saiko, where large canoes meet illegal trawling vessels to
trade for slabs of frozen bycatch to sell in local markets. Although
the practice is illegal and undercuts local jobs, the lucrative saiko
business attracts foreign vessels due to the prevalent challenges of
enforcement.\21\
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\21\ EJF and Hen Mpoano (2019). Stolen at sea. How illegal
``saiko'' fishing is fueling the collapse of Ghana's fisheries.
In Suriname, fishermen, fisherfolk organizations, legislators, and
NGOs have expressed their concern about overfishing and the impact that
factory trawlers will have on their stocks. Collectively they have
successfully prevented the introduction of factory trawlers in
Surinamese waters.\22\
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\22\ See e.g., September 4, 2019, http://www.starnieuws.com/
index.php/welcome/index/nieuw
sitem/54397.
An analysis undertaken by WWF Mexico found no evidence to prove
that fisheries subsidies are helping Mexico develop its industry.\23\
While subsidies were key to increasing the size of the fleet and
continue to support its operation, catch levels have remained constant
for the last 2 decades, which means the industry is less productive per
vessel and workers make less money. Furthermore, the greatest share of
subsidies is given to the wealthier participants in a fishery, instead
of the low-
income fishers in coastal communities. For example, in Mexico one
quarter of beneficiaries receive 80 percent of fisheries fuel subsidies
and industrial fishing entities receive 70 percent of modernization
subsidies. Overall, capacity and effort-enhancing subsidies are
decreasing fisheries productivity, encouraging overfishing and
threatening livelihoods in coastal communities.
---------------------------------------------------------------------------
\23\ Reforming Harmful Fisheries Subsidies: Making the Economic
Case for Mexico. WWF. April 2019.
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Government Subsidies Can Fuel Massive Increases in Fleet Capacity and
Support IUU Fishing
Large subsidies have led to an expansion of fishing capacity and
effort in many regions of the world. For example, government subsidies
in China have supported China's distant water fleet (DWF) when the
operations may not otherwise be viable,\24\ largely through subsidies
for fuel that comprise a significant share of income for China's
distant water vessels. Operators also receive tax exemptions under the
DWF-connected ``going out'' programs, ship construction subsidies
provided by provincial governments and tax breaks provided by coastal
Chinese provinces and cities to support local fishing companies.\25\
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\24\ Greenpeace. Give a Man a Fish--Five Facts on China's Distant
Water Fishing Subsidies, https://www.greenpeace.org/eastasia/PageFiles/
299371/FINAL_The%20problem%20with%20
China%27s%20distant%20water%20fishing%20industry%20subsidies_.pdf.
\25\ Ibid. Half the cost of DWF vessels may be covered by
provincial governments, with Shandong and Fujian provinces
commissioning two-thirds of China's more than 600 new DWF vessels built
between 2012 and 2014.
Subsidies to the fishing industry provided by the central
government alone reached nearly $22 billion between 2011 and 2015,
almost triple the amount spent during the previous 4 years.\26\
Evidence that these subsidies supported illegal fishing by DWF fleets
in West Africa--including using illegal nets, shark finning and fishing
without a license--recently prompted the Chinese Ministry of
Agriculture to sanction three DWF companies by canceling the subsidies
and removing the fishing permits.\27\
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\26\ NYT, April 30, 2017. China's appetite pushes fisheries to the
brink, https://www.
nytimes.com/2017/04/30/world/asia/chinas-appetite-pushes-fisheries-to-
the-brink.html.
\27\ Greenpeace press release, March 9, 2018. Chinese companies see
subsidies canceled and permits removed for illegal fishing in West
Africa, https://www.greenpeace.org/international/press-release/15209/
chinese-companies-see-subsidies-cancelled-and-permits-removed-for-
illegal-fishing-in-west-africa/.
In 2016, the Argentine coast guard sank a Chinese trawler fishing
in its territorial waters,\28\ and Chinese vessels were detained by
Indonesia and South Africa. Since 2016, in an effort to combat IUU
fishing by its DWF, China reportedly has canceled =90 million in
subsidies for 264 vessels.\29\
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\28\ https://www.reuters.com/article/us-argentina-defense-china/
argentina-coast-guard-sinks-chinese-trawler-fishing-illegally-
idUSKCN0WH2QL.
\29\ Greenpeace press release March 9, 2018.
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subsidies for iuu fishing
Estimates vary by country and region, but have revealed substantial
and widespread IUU fishing, valued at between $10 and $23.5 billion per
year and accounting for 13 percent to 31 percent of global marine
catch. The Economist estimates that, based on the extent of IUU fishing
and of global subsidies, about $1.8-$3.7 billion of government
subsidies a year may support illegal fishing activity.\30\
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\30\ https://www.economist.com/leaders/2017/12/19/a-shameful-
failure-to-tackle-overfishing.
Subsidies granted to illegal fishing vessels, operators and owners
magnify the damage caused by IUU fishing and hamper ongoing global
efforts to curtail IUU fishing activity. IUU fishing operators have a
lower cost of production than legitimate fishers because they avoid
some or all of the rules on catch, monitoring, labor, safety and health
that fishing vessels face. Subsidies compound the problem to make IUU
---------------------------------------------------------------------------
fishing even more profitable.
Despite national, regional and global efforts, IUU fishing remains
widespread. Much more needs to be done to combat it effectively. The
WTO has a special role to play in curtailing the economic benefits of
IUU fishing by eliminating the subsidies that promote it.
Penalties and Sanctions on IUU Fishing Are Often Inadequate to Deter
Further IUU Fishing
The absence of severe penalties, combined with limited
enforcement, makes IUU fishing a lucrative option. One study found that
maximum penalties should be increased considerably--by as much as 24
times--compared to current levels, if they are to have a deterrent
effect on IUU fishing.*
Very few countries have levels of fines that are effective
deterrents to IUU activities. Fines and penalties across many legal
systems concluded that they are often based on the ``ability to pay.''
Given that fishers often have little income compared to the societal
costs of their action and that the true owners of vessels are often
disguised, this often works against the deterrence effect.
* Sumaila, U.R., Alder, J., and Keith, H. (2006). Global scope and
economics of illegal fishing. Mar. Policy 30, 696-703.
the benefits of subsidies reform
At the national level, instead of subsidizing increased capacity
and effort in their EEZs, a far more rational policy to maximize
government return on investments in the sector would be for countries
to (re-)allocate funds to effectively manage their own fishing grounds
and ensure a careful balance of fleet capacity and fisheries resources.
This is also vital to ensure sustainable livelihoods in the long term.
Research on subsidies reform using 30 case studies worldwide
indicates that reorienting subsidies away from capacity-enhancement,
and/or conditioning them on specific sustainable performance metrics
had the best economic and ecological outcome in terms of fishery
performance.\31\ In fact, the World Bank estimates that effective
management of global marine fisheries and the recovery of fish stocks
would yield increased revenues of $83 billion a year.\32\
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\31\ Andres M. Cisneros-Montemayor et al. Strategies and rationale
for fishery subsidy reform. Marine Policy 69, 229-236. 2016.
\32\ World Bank 2017.
Fisheries management is critical for sustainability but subsidies
for vessels and operations provide a strong incentive to undermine any
attempt to control fishing activities. Ending harmful fisheries
subsidies is apre-requisite for long-term sustainable fisheries
management.
conclusion
Harmful subsidies fund a vicious cycle, supporting fishing when it
is not economically viable and creating domestic constituencies for bad
policies that lead to unsustainable exploitation of fisheries.
Countries must address subsidies reform at the national level, and
some are, but the WTO is the only body that can take meaningful action
to curtail harmful fisheries subsidies at a global scale. By curtailing
subsidies that drive overcapacity and overfishing and support illegal
fishing vessels, WTO disciplines can undercut ongoing economic support
for activities that destroy our oceans and the livelihoods of millions.
WTO members have made a commitment to fulfil Sustainable
Development Goal 14.6 by adopting an agreement on comprehensive and
effective disciplines on harmful fisheries subsidies by December 2019.
It is time to live up to that promise.
ending harmful fisheries subsidies \33\
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\33\ http://awsassets.panda.org/downloads/
WWF_briefing_WTO_Fisheries_Subsidies_MC11_
2017.pdf.
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WWF calls for a broad scope of prohibitions on fisheries subsidies.
These include prohibitions on, at a minimum, subsidies that increase
fishing capacity or effort, as well as subsidies that contribute to IUU
fishing, including subsidies for capital costs including vessel
construction and modernization, subsidies to operating costs, subsidies
that allow fishing on stocks that are overfished and subsidies that
contribute to IUU fishing vessels, operators, or owners.
A limited scope of prohibitions--for example prohibitions only
relating to subsidies linked to overfished stocks, to IUU fishing
activities, to high-seas fisheries, and/or prohibitions subject to
relatively large potential exemptions--would not be enough to address
the harm to fish stocks and fishing communities caused by widespread
subsidies.
WWF supports appropriate conditions and flexibilities for
developing and least developed countries to implement the disciplines,
but there should be no blanket exemption for small-scale fisheries and
any exemption for subsistence fishing should be on the basis of socio-
economic imperatives rather than vessel size.
New measures are also necessary to increase transparency on
fisheries subsidies programs and to increase compliance by making
reporting requirements enforceable under WTO law.
prohibiting subsidies for iuu fishing
Strong rules are necessary to address all significant fisheries
subsidies programs affecting wild capture fisheries, including
subsidies for IUU fishing in international waters as well as within
EEZs.\34\
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\34\ WWF supports proposals to use the FAO International Plan of
Action (IPOA) on IUU as a starting reference for defining IUU fishing
and applying potential disciplines to vessels or operators found to be
engaged in IUU fishing based on national determinations and/or those of
the Regional Fisheries Management Organizations (RFMOs) or
Arrangements.
Any WTO agreement on fishing subsidies must have, as a fundamental
obligation, the requirement that members include in national
legislation a prohibition on subsidies for IUU fishing activities.
Furthermore, to limit support for the full scope of illegal fishing
activity it is essential that subsidy disciplines go beyond listed
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vessels to prohibit subsidies to:
(a) Operators who are involved in the ownership,\35\ management
and operation of a vessel engaged in IUU fishing activities; and
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\35\ This is particularly important given the global phenomenon of
vessels flying flags of convenience and associated challenges in
identifying these vessels' beneficial owners.
(b) IUU activities within EEZs, based on national determinations
by the flag or subsidizing state, as well as under the national laws of
coastal states where IUU fishing may be occurring.\36\
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\36\ Given the often very complex nature of IUU activities and
associated subsidies, notification of such types of activities to the
WTO should be part of a suite of measures agreed upon to make a
prohibition on IUU subsidies effective.
Given the nature of IUU fishing and the particularly pernicious and
distorting nature of its subsidization, no exceptions to such a
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prohibition should be allowed.
______
Questions Submitted for the Record to Michele Kuruc
Questions Submitted by Hon. Chuck Grassley
Question. I find it deeply frustrating that the fisheries
negotiations have dragged on for so long. An ambitious outcome would
save governments money and conserve fisheries that are on the verge of
collapse.
Lately, I have been hearing two arguments on why the negotiations
have proven so complicated. First, there is a European argument that we
don't want to restrict ``good subsidies.'' I haven't seen anything to
suggest what would constitute a good subsidy in light of what we're
trying to restrict, which is subsidies to illegal, unreported, and
unregulated fishing (IUU).
What are your thoughts on these claims?
Answer. The mandate that the WTO is tasked to deliver on commits it
to eliminating subsidies to IUU fishing as well as prohibiting
subsidies that contribute to overfishing and overcapacity. The second
component is the most critical in terms of impact on the environment:
harmful subsidies incentivize overfishing by artificially reducing the
costs of the activity. This is the same in developing or developed
countries. While the science is clear on what constitutes a ``bad'' and
``good'' subsidy, politics muddies the waters. If governments want to
support their fishing communities in a truly sustainable manner, they
should redirect support away from fishing activity and towards fishers
themselves. Both the European Union and India have a problem of
overfishing in their waters (the Mediterranean for example; India is
trying to encourage its fishers to move out of fishing near shore
waters because they are so overfished). The European Union is currently
considering the reintroduction of subsidies for vessel construction,
which it banned in 2004, recognizing that these were harmful. The
European Union also provides its fishing industry with a fuel
detaxation subsidy. India provides its fishers with fuel subsidies.
It is overfishing that is exacerbating poverty. Fuel subsidies have
been shown by the OECD to be a highly inefficient form of support for
fishers. One of the rationales behind the call for ``flexibility'' is
to allow poorer nations to build their fleets to compete with the
biggest fishing nations. However, poorer nations will never be able to
compete with the top five biggest subsidizers who between them provide
more than 50 percent of all harmful subsidies worldwide.
What both arguments demonstrate is the need for elimination of
harmful fisheries subsidies through a multilateral agreement that
levels the playing field across the board and triggers a paradigm shift
in how governments manage our precious ocean resources.
With respect to the desired outcome of the fisheries subsidies
negotiations referred to above, WWF believes it is essential that a WTO
agreement is comprehensive, a prohibition of subsidies that contribute
to IUU fishing is a bare minimum but it must go well beyond, and
include clear disciplines on harmful subsidies contributing to
overfishing and overcapacity. This is also what is mandated by the WTO
mandate adopted in December 2017 (and SDG 14.6).
A number of WTO members, including the EU, are proposing a so-
called ``green box'' approach in their draft text on a prohibition of
subsidies contributing to overcapacity and overfishing, which does not
include subsidies contributing to IUU.
While fisheries subsidies that support fishery resource
conservation and improved fisheries management can in principle have
some positive impact on the sustainability of fisheries, others that
are proposed to be included in green box proposals, are at least
ambiguous in nature and should not be per se exempted.
Some of the proposals with the green box approach include broad
categories of subsidies such as, subsidies to improve safety on board,
which could entail fleet renewal or vessel modernization measures that
increase the de facto capacity of a vessel to catch fish, even if
capacity measured in GT or kW is not increased; or an increase is
mandated to be compensated by a withdrawal of capacity elsewhere.
Safety on board can be improved by other means than fleet renewal or
vessel modernization. A more effective way to secure jobs and safety at
sea would be to invest in crew and community schemes rather than in
vessels and machinery, e.g., crew safety training, life-saving
equipment, rescue services and lifelong learning and acquisition of new
professional skills linked to safety.
Beneficial subsidies, a.k.a. good subsidies, if correct, are those
that (i) ensure that fishing activities are environmentally sustainable
in the long term, by increasing research and data collection on the
status of fish stocks and health of the marine environment to inform
sustainable fisheries management; and (ii) contribute to a healthy and
productive marine environment, supporting thriving ecosystems, abundant
fish stocks and, thus, sustainable livelihoods, by enhancing control
and monitoring capacities, effectively enforcing legislation,
mitigating negative environmental impacts of fishing activities and
reducing illegal, unreported, and unregulated (IUU) fishing.
The extent to which certain types of subsidies may be exempted from
the disciplines--possibly with certain conditions attached- will
ultimately depend on the design and scope of the prohibitions
themselves. A green box that is not designed carefully and includes
broad categories of subsidies will very likely create loopholes and
undermine the effectiveness of the disciplines.
Question. The other point is the Indian argument that developing
countries need flexibility, and should be allowed to give bigger
subsidies. I've never heard of someone saying that their poor economic
conditions means they should be allowed to spend more on bad behavior.
Answer. Subsidies to small-scale operators are an incredibly small
proportion of global fishing subsidies overall, which overwhelmingly go
to commercial industrial fishing operators. Despite this, WWF believes
that evidence that small-scale fisheries receive a relatively small
share of global subsidies is not a reason to provide an exemption to
provide capacity- or effort-enhancing subsidies. Rather, it suggests
the need for subsidies reform at national level to ensure that when
governments spend money on their fisheries sectors, they do so wisely
and in ways that encourage healthy and profitable fisheries (e.g.,
through improved fisheries management, surveillance and enforcement)
and/or enable the establishment of alternative livelihoods,
coordinating government expenditures with sustainable resource
management and economic and social development strategies.
Nevertheless, if a WTO agreement to end harmful Fisheries Subsidies
is to be effective, it must address the existing issues of overfishing,
overcapacity and IUU fishing globally. As such, it is appropriate that
developing countries (such as India) show some level of ambition in
disciplining their harmful fisheries subsidies, and more intense,
mechanized fisheries within these countries that utilize more harmful
fisheries subsidies in particular, are subjected to some level of
disciplining. The current Indian proposal argues that developing and
least developed countries should be exempted from disciplining harmful
fisheries subsidies within their territorial waters, and disciplines
should extend to the EEZ only for large scale fisheries if certain
criteria are met. This argument is built on the premise that developing
and least developed countries have mostly ``small scale fisheries'' in
comparison to more developed nations.
______
Questions Submitted by Hon. Ron Wyden
Question. An outcome on fisheries subsidies negotiations is long
overdue. As far back as 2010, I held a hearing on fisheries as the
chair of the Subcommittee on International Trade to highlight the
critical economic and environmental importance of safeguarding our
marine environment. Jobs in the seafood industry in Oregon depend on
healthy oceans, but it has an impact on the climate and ocean-dependent
ecosystems. Unfortunately, many of the major fishing countries have not
shown a willingness to sign on to the high-ambition proposals of the
United States.
Illegal, unreported, and unregulated (IUU) fishing undermines the
fisheries management systems that countries do have in place to ensure
the sustainability of fisheries stocks. In your view, is there any
justification for countries to object to the prohibition on providing
subsidies to those that participate in IUU fishing?
Answer. When it comes to combating IUU fishing, the WTO has a
special role to play in curtailing the economic benefits of IUU fishing
by eliminating the subsidies that promote it. The WTO is the only body
that can take meaningful action to curtail harmful fisheries subsidies
at a global scale.
By curtailing subsidies that drive overcapacity and overfishing and
support illegal fishing vessels, WTO disciplines can undercut ongoing
economic support for activities that destroy our oceans and the
livelihoods of millions. WWF believes that we need to limit support for
the full scope of illegal fishing activity. Disciplines to illegal,
unreported and unregulated (IUU) fishing should not have carve outs.
While some proposals have referenced a baseline to identify vessels
using RFMO blacklists, it is essential that subsidy disciplines go
beyond blacklisted vessels, because of the weaknesses and limits in
those processes. Given the nature of IUU fishing and the particularly
pernicious and distorting nature of its subsidization, no exceptions to
a prohibition ending subsidies supporting IUU fishing should be made.
Question. The United States is proposing a cap on fisheries
subsidies. Currently, there is no limit on what countries can spend on
market-distorting subsidies that artificially incentivize overfishing.
Many developing countries argue against such caps and a variety of
countries have proposed so-called green boxes that would exempt certain
subsidies.
What would be the impact of caps on fisheries subsidies on
developing countries? How would proposed green boxes undermine the
effectiveness of subsidy caps?
Answer. The priority is to design disciplines that obligate the
biggest subsidizers to take on the greatest responsibilities. Some of
the biggest subsidizers are developing countries. The U.S. capping
approach is designed to ensure that even the biggest developing country
subsidizers make reductions (i.e., China, South Korea).
A potential green box approach applied to a quantitative
restriction in terms of a subsidy cap would likely mean that the amount
of funds allocated to green boxed types of subsidies would be deducted
from the total amount of subsidies provided by a country that would be
subject to a cap. Whether the amount of funds allocated to green boxed
types of subsidies would be deducted before or after the cap would be
determined.
Green boxes have the potential to undermine the impact of the
entire agreement by rendering prohibitions meaningless. Green boxes
need to be carefully designed so as not to create loopholes or
circumvention of disciplines. The current draft of the chair's text has
only a placeholder for the green box--no proposed language. Designing
the prohibition is the first step, then the green box. Having said
that, examples of the types of subsidies that have been proposed for
inclusion in a green box are: widely recognized beneficial subsidies
(management, stock assessments), subsidies for natural disaster relief,
subsidies for improving health and safety on board vessels, subsidies
for implementing international agreements, subsidies for research,
development and innovation that aim at ensuring sustainable fishing,
including the reduction of negative impact of fishing on the marine
environment. Broad, vague language allows a ``catch all'' that can
serve as a loophole.
It's critical that green boxes are carefully designed with clear
language. Both the capped approach and the green box are currently
flawed. If a green box amount is deducted before a cap baseline is
established, this potentially lowers the cap and might put a country at
an advantage not having to cut as much as they would need to without
the green box deduction. A combination of approaches that reflects
these limits may be needed for the most effective approach.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. So far, the U.S. has mainly relied on unilateral tariffs
under section 301 to push for market-oriented reforms to the Chinese
market, but these measures hurt Americans, while not having much effect
on Chinese trade practices. But this is not the only way to try and
encourage China to adopt reforms--the U.S. can also work with key
allies and use the WTO rules to encourage China to adopt reforms.
While the WTO may need reform in some key areas, the fact remains
that it has historically been very successful when dealing with China.
Uncovering China's WTO violations is challenging but it can be done,
and the U.S. can use the WTO to hold China accountable, in particular
in relation to the areas of intellectual property protection, forced
technology transfer, and subsidies.
How can the U.S. better utilize the WTO dispute settlement system
in addressing the challenges with China's non-market trade policies?
For those areas of contention that are not well covered by WTO
rules, such as state-owned enterprises, how can the United States work
with our allies within the WTO to develop new rules?
What are the limits of the WTO in dealing with China, and how can
the U.S. help facilitate reforms to strengthen it?
Answer. WWF supports effective and fair trade rules that protect
the environment and workers. Specific reforms at the WTO, though, are
outside the area of expertise of WWF.
There are other tools available to the U.S. to address issues of
China and their impact on global fisheries. The most effective
solution, and a more durable one than tariffs, to combat international
illegal fishing and prevent illegal products from entering the U.S.
market, or any market, is to establish catch documentation and
traceability requirements that improve the transparency of fishing
operations and help industry and government better identify the legal
origin of products that are imported into our market. Within the U.S.,
NOAA's Seafood Import Monitoring Program (SIMP) allows the U.S. to
provide these types of tools, to better detect and prevent illegal
imports from entering the U.S. market.
The absence of comprehensive coverage for all seafood imports in
SIMP, however, (only approximately 40 percent by volume and value are
covered by SIMP today) is a serious impediment to establishing the
legal origin of fish products entering the U.S. market. Illegal fishing
and seafood fraud are pervasive problems that exist in virtually all
foreign fisheries; they are not limited to the 13 species currently
covered by SIMP. Even with the current coverage of products under SIMP,
the majority of seafood imports to the U.S. are not covered. This gap
provides an easy pathway for billions of dollars' worth of illegal
products to continue to enter the U.S. With the limited number of
covered species, the current implementation of the program provides an
incentive for mislabeling between SIMP-covered and non-SIMP products.
Another tool, is the U.S. system for ensuring country level
compliance with respect to IUU fishing, derived from mandates in the
High Seas Driftnet Fishing Moratorium Protection Act (HSDFMPA). This
act requires NOAA to provide a biennial report to Congress that
includes a list of nations with vessels engaged in IUU fishing, fishing
that results in bycatch of a protected living marine resource, or that
have vessels that fish for sharks on the high seas without equivalent
conservation protections as the U.S. The Act also requires that the
U.S. consult with listed nations on addressing the problems identified
in the listing and that the United States provide positive or negative
certifications to Congress depending on whether the problems have been
resolved in the next biennial report. If a country is negatively
certified, the U.S. may invoke sanctions.
NOAA's efforts, though, have been narrowly focused on violations
that occur in U.S. waters or of regulations of the Regional Fisheries
Management Organizations (RFMO) of which the U.S. is a member. The
United States' limited interpretation of IUU in this context, which
runs counter to the existing legal definition as found in several acts
listed below, results in an ineffective deployment of what could be a
powerful tool, and a limitation when working with countries like China
to curb their illegal fishing. To address these limits, the U.S. should
apply the existing legal definition of IUU, as codified through
Maritime SAFE Act of 2019 \1\ and the Illegal, Unreported, and
Unregulated Fishing Enforcement Act, to the HSDFMPA process. This
definition should be interpreted broadly to apply to all IUU fishing,
regardless of where it occurs, and to include forced labor violations
to allow the U.S. to address the most egregious actions of our trade
competitors.
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\1\ The Maritime SAFE Act was included in the National Defense
Authorization Act for Fiscal Year 2020, Public Law 116-92, sec. 3531-
3572.
Question. Maximizing the effectiveness of the WTO through American
engagement and leadership is in the broad national interest as a means
to provide greater economic stability and prosperity. Detractors say
that the WTO system is ``rigged,'' but the fact remains that the United
States has won 85.7 percent of the cases it has initiated before the
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global
trade, and foreign markets are critical to our agriculture,
manufacturing, and service industries. Economists have found that the
U.S. withdrawing from the WTO would lead to diminished trade growth,
costly market and supply-chain disruptions, and the destruction of jobs
and profits, especially in import- and export-dependent U.S.
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industries.
Can you speak to the projected effects of withdrawing from the WTO?
Answer. The absence of a forum at the WTO to negotiate on fishing
subsidies would complicate efforts to establish an agreement and create
much needed reforms. However, beyond that, this is outside of the area
of expertise for WWF to comment on.
Question. Do you believe that the resulting trade barriers from
withdrawal from the WTO would compel some American companies either to
downsize or move offshore?
Answer. Any future considerations for decisions concerning U.S.
participation in the WTO would be speculative and beyond the area of
expertise for WWF.
______
Questions Submitted by Hon. Maria Cantwell
Question. Fishing is very important to Washington State. Commercial
fishing and the seafood industry accounts for 15,900 jobs at an average
annual wage of $67,600 in my State.
In total, the fishing industry is a central part of Washington
State's $30 billion maritime economy.
Fisheries in the United States are governed by the scientific and
conservation principles of the Magnuson-Stevens Fishery Conservation
and Management Act.
This act requires us to follow the best available science, which
ensures healthy fish stocks for future generations. At times, though,
this results in additional costs associated with scientific investment,
bycatch reduction tools and accountability measures such as observer
coverage.
It is important that negotiations consider the high scientific bar
our fishermen are held to, because our industry must have a level
playing field. It isn't fair that our fisherman are forced to compete
with illegal fishing by countries like Russia, China and India.
Given the global downturn because of the coronavirus pandemic, do
you expect illegal, underreported and unregulated fishing to increase?
Answer. Impacts of the coronavirus have led to the loosening of
some restrictions in some fisheries--particularly related to management
measures for the monitoring, control, and surveillance (MCS) of
fisheries. Some fisheries, for example, have temporarily removed
requirements for observers on vessels and have extended fishing
seasons. The removal of key MCS elements, such as human observer
coverage, bans on at-sea transshipment, port inspection, and high seas
boarding and inspection would weaken the links that maintain the
verifiability of fishing-related activities throughout the seafood
supply chain. It would open the door to increased illegal, unreported
and unregulated (IUU) fishing and, in doing so, could undermine the
recovery and resilience of many important fish stocks globally. It is
important that fisheries managers take these impacts into consideration
when developing emergency measures, particularly at a time when
approximately 33 percent of global fish stocks are overfished and
illegal fishing worldwide is reported to already account for up to
$36.4 billion in catch, or one in five wild-caught marine fish.
WWF believes that fishery managers should take the following suite
of practical actions that could be applied in short order as a
complement to any measures that reduce oversight of fisheries during
the COVID-19 pandemic to reduce the likelihood of IUU fishing: (1)
ensure that any steps to relax, suspend, or remove requirements for
observer coverage on fishing and carrier vessels, high-seas boarding
and inspection, and/or port inspection, or other form of physical
oversight, are limited only to the period of emergency resulting from
COVID-19 and based on expert advice related to human health and safety
risks, and a date is set for when these suspensions or alternative
measures will be reviewed; (2) require vessels whose observer coverage
requirements have been waived to collect, record, and report all the
observer-provided data; (3) prioritize the development of electronic
reporting and electronic monitoring technologies, standards, and
programs for use on fishing and carrier vessels, which would allow EM
to complement human observers, or if necessary, replace them now or in
similar situations in the future; (4) immediately increase VMS polling
rates for affected vessels to no less than hourly, which will allow
vessels' positions to be verified from port-to-port and therefore
enable contact tracing; (5) immediately require the broadcast of AIS
data from suitably equipped fishing vessels and carrier vessels as a
complement to VMS; (6) immediately ban manual reporting in the case of
VMS failure and require vessels that do not report on VMS, experience a
VMS ``failure,'' or cannot broadcast on AIS to immediately stop fishing
and return to port, while ensuring this does not convey a
disproportionate effect on developing States; (7) require reporting to
port State authorities prior to vessels making port visits, including
advance notice of desired entry accompanied by data on the catch
onboard and vessel history, interactions with other vessels and
carriers and previous port access, which would allow port States to
make more informed decisions with respect to entry requests; (8)
publish a list of authorized transshipments, including their time and
location, that occur during the emergency period; (9) dedicate
additional resources to the analysis of VMS and AIS data, to support
port States in carrying out necessary risk assessments; and (10)
increase port inspections and strengthen cooperation and information
sharing with port authorities of other relevant coastal States.\2\
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\2\ WWF et al. 4/7/20. NGO Letter to RFMOs on relaxing certain
conditions during COVID-19 pandemic.
Question. Could you discuss more about it would mean for Washington
State's commercial fishing if the WTO negotiation on fisheries is
further delayed or fails? What do we know about the specific costs that
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will be borne by our commercial fishing sector?
Answer. Subsidies allow for lower operating costs and thus allow
for subsidized cheaper priced products to be trade internationally and
to compete with U.S. exports around the world, and with domestic
catches as imports within the U.S. This creates an unfair economic
advantage for foreign subsidized fishermen and puts U.S. domestic
fishermen, who aren't receiving subsidies at a competitive
disadvantage. So Washington fishermen are forced to unfairly compete
with cheaper subsidized and sometimes illegal products both as exports
being traded internationally, and in the domestic market as cheaper
imports compete with the catches of U.S. commercial fishermen.
______
Questions Submitted by Hon. Sheldon Whitehouse
Question. Could you let us know two things? One, what should we be
pressing China on? Because I think you have got a ready audience for
that.
Answer. China is the world's largest fishing country, the world's
largest seafood processing country, and the world's largest importer
and exporter of internationally traded seafood. However, China lacks
many needed controls on its processing sector, its fisheries management
methods and controls on its fleet, both domestic and distant water:
including adequate monitoring of its fleet, transparency in its fleet's
size, capacity, location, activities, catch, etc. Appropriate catch
documentation and traceability requirements are needed to ensure that
the fish landed, processed, and traded in, to and from China are from
legal operations. As a result, China is a sort of black box where
legally and illegally sourced fish are mixed, where illegal fish may be
essentially ``laundered'' in the processing countries, in China or
elsewhere and subsequently enter international trade as a ``legal''
product of the exporting nation. Chinese re-processing of seafood
products is staggering in its scale, highly complex in its patterns of
sourcing, and characterized by lack of transparency and traceability.
An absence of species-specific commodity codes for exported products,
and a growing trade of unspecified frozen fish imports create problems
in identifying and tracking fish products imported into China and
processed for re-export.\3\ Third-country intermediaries (e.g., Chinese
products exported to Canada and then exported from Canada to the United
States) also generate problems in traceability of seafood products from
China.
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\3\ Clarke S. Understanding China's fish trade and traceability.
Traffic East Asia. 2009, http://www.trafficj.org/publication/
09_understanding_china_fish.pdf
The U.S. should press China to adopt comprehensive catch
documentation and traceability requirements to ensure that the fish
coming into--and often out of--the country are from legal sources.
China should move to adopt and implement the Port States Measures
Agreement and work with other countries, particularly in jurisdictions
where its vessels are allowed to operate, to put in place the same
measures. The U.S. should also establish requirements that imports from
China and other countries meet fisheries management standards
comparable to the U.S. under Magnuson-Stevens, and restrict entry of
those products that fail to meet the same sustainability requirements
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as U.S. fishermen.
China, however, is not the only problem country. Many other
Southeast Asian countries (Vietnam, Thailand, etc.) are also growing as
processors for fishery products exported to U.S.. Sometimes under the
ownership of Chinese nationals. The readily available and simplest
solution to the continued presence of illegal fishery imports into the
U.S., from China and other countries, is for Congress to push the
administration to expand the existing Seafood Import Monitoring Program
to cover all fishery imports from all countries.
Question. And two, what should the Oceans Caucus, our bipartisan
oceans group here in the Senate, be looking at as the next steps on
controlling pirate fishing, including enforcement. I know you said that
is not all of it, but enforcement is a lot of it. We have these new
technologies for satellite-based wake recognition software and so
forth.
Answer. While promising new technologies are being established to
better monitor, control, and surveil fishing operations, these need to
be combined with systems and requirements to document and verify legal
catches and their movement through supply chains. The most effective
solution to combat international illegal fishing and prevent illegal
products from entering the U.S. market, or any market, is to establish
electronic catch documentation and traceability requirements that
improve the transparency of fishing operations and help industry and
government better identify the legal origin of products.
The need and demand for fast, reliable, and innovative systems for
collecting, storing, communicating, and sharing fisheries data has
increased. Comprehensive electronic vessel tracking, electronic
monitoring, electronic reporting of catch and bycatch, and electronic
traceability technologies have been developed and employed in many
fisheries, and electronic systems are moving towards integrated
electronic fisheries information systems. The benefits of integrated
electronic fisheries information systems include improved compliance
and reporting, improved fisheries sustainability, improved quality in
stock assessment, improved traceability and catch quality, and improved
industry profitability. In many fisheries, it is logistically more
feasible, cost effective, and safer to use electronic monitoring and
reporting to collect catch and bycatch data. The status of electronic
fisheries information systems and use in major exporting countries is
limited and non-existent in many fisheries.\4\ Helping countries to
develop and build these systems is a key factor to establishing
successful fisheries management that can verify the legal origin of
fish products as they move through supply chains and trade.
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\4\ For more information and a review on the status of electronic
fisheries information systems for the largest fishing countries please
see: Sylvia G, Harte M, Borberg J. 4/23/2020. ``Status of Electronic
Collection and Reporting of Key Information in Major Fisheries,''
https://www.worldwildlife.org/publications/status-of-electronic-
collection-and-reporting-of-key-information-in-major-fisheries.
Within the U.S., NOAA's Seafood Import Monitoring Program (SIMP)
allows the U.S. the foundation for a tool that can be further developed
to better detect and prevent illegal imports from entering the U.S.
market. As stated earlier, the absence of comprehensive coverage for
all seafood imports in SIMP, is a significant challenge to successfully
blocking the entry fish products entering the U.S. market. Congress
should work to ensure that the SIMP requirements apply to all imports
of seafood and that strong verification measures are adopted to prevent
illegal seafood from entering the U.S. Robust implementation of the
Program is also needed to ensure that information requirements,
including for key data elements related to labor practices, can
effectively identify the legal origin of products, and prevent the
entry of illegal products. As currently implemented, SIMP does not
clearly require an importer of record to provide certain key data
elements, such as the Unique Vessel Identifier (UVI), or authorization
to fish, at the time of entry into U.S. commerce. Moreover, it is
unclear if standard auditing procedures for SIMP-derived data includes
data validation as well as confirmation of collection. Without
transparency about audit procedures and how SIMP data are being
verified, confidence in the program's efficacy will undermine support
for the program and impair importers' ability to get the necessary
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documentation from their suppliers.
To address some of these challenges, additional measures to
strengthen SIMP are needed, including additional data requirements for:
reporting on the location of catches to the smallest management unit
that exists, and jurisdiction; the automatic identification system
(AIS) unique identifier (MMSI number) for the fishing vessel; the
chain-of-custody records, including transshipment, processors, storage
facilities, or distributors back to the vessel; the beneficial owner of
the fishing and transshipment vessels; refined harmonized tariff
schedule (HTS) codes that are more
species-specific and differentiate between wild-caught and farmed
product; and external review, verification, and certification of the
catch information by an independent third-party (and/or competent
authority responsible for management of the catch). The data elements
and information collected under SIMP should be reviewed and screened
automatically by computer database systems, with algorithms developed
and based on risk factors for IUU, by NOAA and Customs targeting to
more rapidly and effectively identify and screen products that may be
of possible IUU origin.\5\
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\5\ NOAA has an international fisheries analysis team as part of
the Office of Law Enforcement, and this should be part of their remit,
to enumerate on a regular basis the list of ``red flags'' that should
trigger a deeper screen by CBP.
To be truly effective, SIMP must be formally embedded as an
operational enforcement tool relied on by NOAA's Office of Law
Enforcement and Customs and Border Protection with clear procedures for
actionable intelligence and information transfer. These gaps hamper
NOAA's ability to proactively identify at-risk shipments. The failure
of SIMP to cover all species, to effectively verify the information
currently provided, and to require all key data elements at the time of
entry as required in the regulations are serious impediments to
establishing the legal origin of all fish products entering the U.S.
market. Given that in-port inspection capacity is profoundly limited,
NOAA's leadership in making the SIMP as robust, efficient, and
sophisticated as possible is essential if the program is to achieve its
objective of ``ensuring that imported fish and fish products derived
from illegal harvest of species designated to be at risk of illegal
fishing or seafood fraud can be excluded from entry into U.S.
commerce.''\6\
---------------------------------------------------------------------------
\6\ NOAA Fisheries, Seafood Important Monitoring Program Final
Regulatory Impact Review and Final Regulatory Flexibility Analysis at
18 (2016).
The U.S. should also apply the existing legal definition of IUU, as
codified through Maritime SAFE Act of 2019 \7\ and the Illegal,
Unreported, and Unregulated Fishing Enforcement Act, to the High Seas
Driftnet Fishing Moratorium Protection Act (HSDFMPA) process that
requires NOAA to identify a list of nations with vessels engaged in IUU
fishing process. This definition should be interpreted broadly to apply
to all IUU fishing, regardless of where it occurs, and to include
forced labor violations to allow the U.S. to address the most egregious
actions of our trade competitors. Congress should work to also make the
certification and sanctions authority more reflexive such that NOAA
must act. For countries identified and not subsequently positively
certified, the U.S. should restrict importation of fish and fish
products not only from the vessels engaged in IUU fishing, given how
easily they can change names and flags, but more broadly from vessels
flagged to that nation. At the same time, the U.S. may wish to step up
its efforts to provide technical assistance to those countries to help
them develop needed capacity.
---------------------------------------------------------------------------
\7\ The Maritime SAFE Act was included in the National Defense
Authorization Act for Fiscal Year 2020, Public Law 116-92, sec. 3531-
3572.
Furthermore, forced labor, human trafficking, child labor, and
other major human rights violations often co-occur with IUU fishing. As
with IUU fishing, violations of labor laws and standards also lower the
costs of production and depress the price of the product, giving those
goods an unfair economic advantage when competing with legal U.S.
products caught under stronger labor protections. Faced with this
reality, it is important that the U.S. provides strong import controls
and, expanded transparency, and oversight to safeguard against both IUU
fishing and labor abuses, helping to bring greater transparency to
opaque supply chains and level the playing field for U.S. fishermen.
The U.S. has some programs and authorities designed to combat IUU
fishing and human trafficking in supply chains already. These include
SIMP as well as the Tariff Act.\8\ Congress should ensure that the
agencies are using existing authorities effectively to ensure that all
products entering into the U.S. market are not produced through IUU
fishing or with forced labor. Congress should also direct the agencies
to pursue additional tools under these authorities, including
requirements for importers to formally share their due diligence
approach and management systems with regards to forced labor in their
supply chains. Congress should also encourage effective interagency
collaboration, to better connect anti-IUU related processes with
expertise around forced labor, including taking advantage of the
existing State Department Trafficking in Persons report process and
internal agency knowledge, the Department of Labor's List of Goods
produced with forced and child labor, and other similar efforts.
---------------------------------------------------------------------------
\8\ Tariff Act sec. 307 as amended by the Trade Facilitation and
Trade Enforcement Act: ``[A]ll goods, wares, articles, and merchandise
mined, produced, or manufactured wholly or in part in any foreign
country by convict labor or/and forced labor or/and indentured labor
under penal sanctions shall not be entitled to entry at any of the
ports of the United States, and the importation thereof is hereby
prohibited.''
Congress should also support efforts in other countries to put in
place and enforce sustainable fisheries management and labor rights
systems. Similarly, increased investment in integrated risk analysis
and detection systems with a focus on IUU and labor abuses in the
seafood trade should be made a priority for the CBP's Commercial
Targeting and Analysis Center (CTAC). CTAC already serves this mission
but needs to be better supported and integrated with SIMP and other
---------------------------------------------------------------------------
available tools.
Question. What do you think with respect to a plastics treaty
should be our next steps, given that so much of the plastic waste that
gets thrown into the ocean comes from maybe a dozen countries and a
dozen rivers. If we could clean up a dozen countries and a dozen
rivers, we would really get way ahead of the problem. So if you have
ideas for us on what our best options are through the International
Treaty process for improving our international performance on ocean
plastic waste, if you could send me that, I would be grateful.
Answer. Thank you for your question and your incredible leadership
in the plastics space, including through enactment last Congress of
Save our Seas and passage this Congress in the Senate of Save our Seas
2.0. Your leadership on this issue has significantly increased
visibility of the bipartisan interest in reaching meaningful solutions.
It has also had direct impacts on the water and in communities around
the world.
As to your question, you are right to point out the global nature
of this problem. While the U.S. works to better address materials
production, disposal, and reuse here at home, we need to strengthen our
position as global leaders. We have been pleased to see support for
international action through movement of a variety of vehicles through
Congress, including Save our Seas 2.0, the Break Free From Plastic
Pollution Act, the PLASTICS Act, ongoing conversations around
establishment of an international trust fund, and others. WWF would
like to see Congress encourage the administration to support
establishment of an international binding agreement and to support U.S.
accession to the Basel Convention. We envision an international binding
agreement moving through either UNEA or UNGA. On the second element, as
the U.S. ideally works toward accession to Basel, we hope that Congress
will push the administration to establish strong criteria to govern
export of waste from the U.S.. As we work toward reducing our materials
footprint here in the U.S., the government must ensure that operators
don't evade improvements here at home simply by exporting waste to
nations least able to manage it. Existing bilateral agreements for the
export of waste should be strengthened and criteria developed and
implemented for establishment of new agreements. And, finally,
ungoverned export of waste must not become an element of the Kenya Free
Trade Agreement currently under discussion. Solving the plastics
pollution crisis demands that we both remove plastic that exists in our
environment and shift to a responsible materials management system that
enables reuse and recyclability. Instituting extended producer
responsibility, where producers of plastic have significant
responsibility--financial and/or physical--for the treatment or
disposal of post-consumer products, is the key to ensuring that the
systems-level changes that are needed are accountable, while also
funding desperately needed investment in infrastructure with proper
oversight.
______
Question Submitted by Hon. Thomas R. Carper
Question. How has the U.S. benefited from being a leader in an
institution like the WTO?
Answer. U.S. participation and cooperation in international
institutions is needed to address global problems--such as fishing
subsidies, IUU and overfishing, climate change, biodiversity and
habitat loss, and many other challenges that go beyond the jurisdiction
of one country. The U.S. could benefit by being a leader to include
greater protections for the environment and for workers to create
needed change within institutions like the WTO.
______
Prepared Statement of Laura J. Lane,
Chief Corporate Affairs and Communications Officer, UPS
Chairman Grassley, Ranking Member Wyden, and members of the
committee, thank you for having me here today. My name is Laura Lane,
and I am chief corporate affairs and communications officer at UPS, and
I am honored to appear before you today to testify on the future of the
World Trade Organization (WTO) on behalf of UPS. UPS is a global leader
in logistics, offering a broad range of solutions including
transporting packages and freight; facilitating international trade,
and deploying advanced technology to support the world of business
through our smart, multimodal logistics network.
The subject of today's hearing is one of great importance to UPS.
While headquartered in Atlanta, UPS serves more than 220 countries and
territories worldwide, and every day, our almost half a million
employees move 6 percent of U.S. GDP and 3 percent of global GDP. UPS
is committed to continuing to find new ways to operate more
efficiently, cost effectively and sustainably--for our customers, the
environment, and the communities we serve around the world.
At UPS, though, we are situated at the intersection today of many
different trends including changing global trade and investment flows;
digital modernization that is transforming business models; and the
economic effects of the COVID-19 pandemic. UPS is in a unique position
given the breadth of our operations and our important role as an
essential service provider in the response to the pandemic to provide
insights on the WTO reforms needed and the specific policy
recommendations to promote greater justice, inclusion and fairness in
the multilateral trading system.
From our perspective, the WTO serves as a cornerstone of the global
rules-based trading system and has helped accelerate growth and
development for decades. However, the world has changed since 1995, and
reforms to the WTO are needed to ensure that it remains relevant into
the future. In 1948, the first year of the General Agreement on Tariffs
and Trade (the precursor to the WTO), world trade was $58 billion, and
today it is well above $20 trillion. That growth was only possible
because of the trading rules that were put in place to foster greater
trade and investment flows.
That growth in economic opportunity is why the WTO is so important
for the American business community. Ninety-nine percent of global
trade takes place in countries that are members of the WTO. Based on
the most recent data available, 65 percent of U.S. trade in goods and
services takes place on WTO terms, while the other 35 percent occurs in
the countries covered under our 14 free trade agreements (FTAs). Those
14 FTAs use the WTO rules as a foundation. The WTO, therefore, creates
the basis for the common set of predictable and transparent rules that
allow an American worldwide company like UPS to serve our customer and
consumers everywhere around the world.
As 96 percent of the world's consumers are outside the U.S.,
American exporters have benefited from having a single set of rules as
they have entered new markets. And, as the world has gone digital,
these opportunities have expanded as consumers anywhere in the world
can now reach American companies by the click of a mouse or a tap on
their smartphone. Those clicks have been especially important for
people everywhere around the world abiding by stay at home orders to
get through the current pandemic. If the WTO were to cease to exist, we
would go back to a world where any nation could change the rules at a
moment's notice, creating great uncertainty and dramatically slowing
trade and investment flows.
As we have all seen, that predictability and certainty becomes even
more important during a crisis. As an essential service provider
facilitating the movement of critically needed supplies during the
COVID-19 pandemic, we at UPS saw how important it was for countries to
adopt best practices. For example, UPS saw some countries move quickly
to accept e-signatures on customs documents; other countries created
green lanes designated for rapid cargo-specific movements; and many
countries removed or modified mobility limitations for essential
workers like our heroic air cargo crews. Time is of the essence in our
business, and never more so than during a pandemic where the ability to
move across borders quickly saved time and more importantly, it saved
lives.
As the WTO looks at potential reforms to ensure it remains an
engine of growth, we would like to see that the best practices we have
seen adopted throughout the crisis to facilitate the movements of goods
and services become permanent realities. We need the e-commerce
negotiations completed so that digital trade rules apply globally. We
also need the trade rules rebalanced and modernized to become more
just, inclusive and fair to support economic recovery. And maybe, most
importantly, we need the US leading these reforms.
bringing timely reforms and modernization to the wto
In many respects, justice delayed is justice denied. While I defer
to those on this panel who are more expert in this area, I would argue
that reform is needed to ensure that disputes are resolved more
quickly. No one wants to wait longer than needed for critical PPE to be
delivered; so too no business wants to wait too long for justice to be
rendered in the WTO.
I would also argue that the WTO needs to take a page out of the UPS
shipping manifests and deliver more in a timely manner. In the 25 years
since the creation of the WTO, the members have concluded only one new
agreement--the plurilateral Trade Facilitation agreement. UPS strongly
supported this pact, which eliminates inefficient border procedures and
improves transparency via digital practices at borders.
But we have seen too many dramatic changes in the past 25 years,
and the WTO has not been able to move fast enough. That's why we are
strong supporters of the current Joint Statement Initiatives (JSIs),
which allow trade negotiations among coalitions of willing members to
occur more quickly in the WTO. These agreements allow countries to opt
in to negotiations on topics such as e-commerce; domestic regulations
of services; investment facilitation; micro, small, and medium-size
enterprises (MSMEs); and women and trade.
Focusing on one of these, in particular, is the JSI on e-commerce,
covering digital trade including data flows and data localization
policies, as well as border processes for e-commerce. During the COVID-
19 pandemic, we have seen how e-commerce has provided a lifeline to
consumers and businesses alike. From our vantage point, the time has
come for governments and international organizations such as the WTO to
foster, and not frustrate, digitally enabled international trade.
Given our customer base, we know a company no longer needs to be
big to be global. There are an estimated 25-30 million formal SMBs in
the world, which contribute up to 60 percent of total employment and up
to 40 percent of national income in emerging economies, according to a
World Bank report. Connectivity through the Internet has enabled even
micro-enterprises to sell products and services to consumers across
borders. However, their full potential is unrealized if they cannot tap
into new global markets.
In that regard, trade rules have traditionally been written for
traders who send ocean and air containers, not small parcels. The
significant growth of e-commerce in a short span of time brings us into
new territory in which too many governments around the world have
sought to restrict its reach based on concerns related to:
The surge in import volume and its impact on customs staffing,
as well as the ability to catch illegal and harmful packages;
New foreign competition for domestic retailers that may not be
covered by domestic sales tax or other regimes; and
E-commerce users' lack of understanding or application of a
country's existing trade rules.
While these concerns are important for policy consideration, UPS
sees them as opportunities for governments to address the complexities
of the process and create greater opportunities for e-commerce growth.
An important area for WTO modernization and reform, therefore, should
be focused on simplifying the import process for low value goods and
recognition that the rules for moving ocean containers should not be
the same for e-commerce packages.
The following, therefore, are practical suggestions to form the
basis for a new modern e-commerce policy framework within the WTO:
Leverage new technology solutions to reduce administrative
burdens and streamline border processes for low-value shipments;
Simplify and harmonize returns processes and duty and tax
drawback procedures;
Implement simplified VAT processes for imports of low-value
goods; and
Provide for electronic submission of customs declarations
prior to arrival of goods to allow pre-arrival processing and immediate
release at the border.
The digital economy and the global e-commerce boom are creating
unprecedented and unique opportunities for governments and business to
work together to craft an environment that will create jobs and support
economic recovery, especially now as countries navigate through the
economic downturns caused by the COVID-19 pandemic.
promoting greater trade inclusion for women and micro,
small, and medium-size enterprises
True economic recovery will depend on fostering greater inclusion
in trade. In that regard, the WTO has done some great initial work on
Women in Trade and MSMEs but so much more needs to be done now. Women
and small businesses have been the hardest hit by COVID 19. The WTO,
therefore, has a critical role to play in helping with their recovery
efforts.
Despite the fact that trade negotiations open new markets,
obstacles to women and minority engagement in international business
render the full benefit of new trade agreements unrealized and the
economic potential limited. Facilitating full engagement in trade
through equal opportunities, therefore, is all about promoting
prosperity that will be widely shared by all trade partners through
increased exports, more jobs, greater consumer choice, and a broader,
more diversified supplier network.
The fact of the matter is that SMEs and particularly women have
just not benefited as much from trade as they should. While women make
up 40 percent of business owners in the U.S., we see globally that only
1 in 5 women-owned businesses export. The WTO has to do more to ensure
that there is no discrimination that prevents women and women-owned
businesses from trading globally.
UPS has engaged trade negotiators for the past year regarding ideas
we have for commitments governments could make to foster greater
farness and inclusion, particularly for women. These recommendations go
beyond the sharing of best practices, and include codifying anti-
discrimination language in future trade agreements. We have suggested
that every member can start by making non-discrimination commitments in
their General Agreement on Trade in Services (GATS) schedules so that
restrictions on a women's ability to own property in our own name, open
a bank account to run her business or move freely across borders to
market her goods are explicitly prohibited.
We also support the ongoing negotiations on domestic regulations
that seek to eliminate discrimination on the basis of gender for the
granting of licenses or recognition of qualifications for the provision
of services. For example, in some countries, governments still will
only grant licenses to be truck drivers or pilots to men. UPS believes
our greatest strength comes from the diversity of our people across our
network, coming from both our men and women drivers and pilots who are
committed to delivering everywhere in the world. We believe that the
WTO's trade rules should reflect that reality and provide that
opportunity for men and women alike.
The WTO could go even further and incorporate the language in the
USMCA that creates platforms to actively support small and medium sized
business as they engage in trade and that includes disciplines that
explicitly prohibit the ability of any of the contacting parties from
discriminating on the basis of gender.
fairness as the basis for a modern trading system in a post-covid-19
world
Finally, on the need for fairness, the coronavirus has required
extensive government intervention in markets. Going forward, therefore,
WTO members will need to address better the issues of industrial
subsidies and state-owned and state-
sponsored enterprises to prevent market-distorting measures from
negatively impacting global competition.
The WTO members also need to come up with a more modern definition
of developed versus developing country status, as too many countries
that were developing in the 1990s have clearly graduated to more
developed country status. The Trade Facilitation Agreement provides a
model for how to address this fairness question. How we address
questions of the environment through the lens of fairness from a
developing versus a developed country perspective is also going to be
an important issue for the WTO.
Finally, we need a Director General who can deliver reforms that
bring greater justice, inclusion, and fairness to the global trading
system. In order for the WTO to be properly positioned for the future
and implement those needed reforms, strong leadership is required, not
only from the members, but also from the top of the WTO itself.
conclusion
Tackling all of these issues will shape economic recovery and
define the next generation of trade and investment opportunities for
America in the world, which is why we need to invest now in reform of
the WTO as an institution. COVID-19 will undoubtedly have a substantial
and lasting effect on the global economy, and the WTO must be prepared
with the necessary policy changes for the future.
As an essential service, UPS has a vital role in advocating for
reform so that the WTO fosters a more just, inclusive and fair trade
system that truly delivers economic opportunity for all. Thank you for
your time today.
______
Questions Submitted for the Record to Laura J. Lane
Questions Submitted by Hon. Chuck Grassley
Question. I want to thank you for your service to the country in
Rwanda as a Foreign Service officer during the genocide. You have spent
so much time trying to protect and empower people in your career that
it warrants emphasis.
Trade is something that can empower people too. In particular, I
think an important development is that women's participation in the
workforce has increased drastically as we've removed trade barriers
around the world, including through the WTO. I think that removing
barriers even further will continue to increase opportunities for
women.
As we pursue a reform agenda at the WTO, what are the types of
things we should be doing to making sure that trade is inclusive, and
to make societies more open and free?
Answer. Thank you. I was proud to serve our country in all of my
tours of duty. In that regard, my time in Rwanda was definitely a
seminal moment in my career and underscored the importance of many of
the key values that have formed the basis for my trade advocacy
efforts.
Throughout my career, I have seen the largely untapped potential
women can have in building businesses and transforming communities and
the extensive barriers to realizing that potential that women face
around the globe. Before the COVID-19 pandemic, UPS was very focused on
helping women-owned businesses and women entrepreneurs to engage in
global trade. We saw that only one in five women-owned businesses
exported, and we knew that companies that export, pay more, employ more
people, and are generally more successful. We also knew that women-
owned businesses did more to put money and resources back into their
communities, and that they build resilience as a result.
Unfortunately, before the pandemic hit, only approximately 5
percent of working-age women in OECD countries were owners of
established businesses (i.e., a business more than 42 months old),
while 3 percent were owners of new businesses (i.e., a business less
than 42 months old) and another 5 percent were actively trying to start
a business. These few but definitely empowered women entrepreneurs and
women business owners not only succeeded for themselves, they also
helped their communities.
Understanding these realities, UPS has been keenly focused on
helping these business owners as we view our role as not only to
connect companies with customers, but to connect communities. With
COVID-19 and the economic effects of the crisis, specifically on women
and women-owned businesses, we now see our role as more important than
ever in helping to foster economic recovery and improve the health of
communities everywhere.
In our view, a key way to promote increased prosperity is by
unlocking the potential and power of women entrepreneurs and ensuring
they can trade their products around the world. We believe women's
economic empowerment isn't just the right thing to do--it's the smart
thing too. In many economies, women disproportionally face obstacles to
owning and growing their own businesses despite the significant
economic payback their empowerment brings in terms of job creation and
poverty alleviation. New global commercial trends such as e-commerce--
which have become especially critical during the pandemic--have allowed
companies of all sizes to tap into international business and trade
like never before, spurring job growth and stability for their domestic
economy.
UPS, therefore, has worked to advance a ``women in trade'' trade
agreement, initially as part of what was supposed to be the 2020 WTO
Ministerial Conference in Kazakhstan, to build upon the 2017 Buenos
Aires Declaration and transfer some of the provisions in that
declaration into concrete trade obligations. While many view trade as
gender-neutral, and trade agreements and trade provisions as not
written so as to favor men or women, the facts show that the benefits
do not flow equally. This reinforces the need to be more deliberate
with regard to how to implement and execute trade agreements.
As just one example among many, in the WTO's domestic services
regulation agreement currently being negotiated, there is a provision
around how licenses and authorizations are given in-country for service
workers, and ensuring that there is no discrimination with regard to
how licenses are given. However, there are still provisions on the
books in certain countries that limit who can do certain jobs based on
gender and anachronistic views of the roles of men and women in any
economy. Women in too many countries still can't own property in their
name or open bank accounts without male co-signers. Certain trade-
related standards are written in ways that advantage men and products
exclusively used by women often carry higher tariffs for no
demonstrable reason. Addressing each of these issues requires a more
deliberate analysis of trade through a gender lens.
UPS also believes that countries should be more thoughtful in
promoting diversity in supply chains; this will be especially important
during the COVID-19 recovery phase. During the COVID-19 crisis, many
companies learned that some of their supply chains were not as
resilient or diversified as they needed to be. Evidence from the 2008
financial crisis suggests that women-led businesses are not necessarily
more vulnerable than men-led businesses. However, COVID-19 has
presented new unique challenges, hitting women the hardest.
More specifically, in developing economies where 70 percent of
women's employment is in the informal economy, these women have few
protections against dismissal or coverage for paid sick leave. In
addition to working in the informal economy, women are more likely than
men to work in social sectors--such as services industries, retail,
tourism, and hospitality--that require face-to-face interactions. These
sectors have been the hardest hit by social distancing and mitigation
measures.
According to the International Monetary Fund (IMF), in the United
States, unemployment among women was two percentage points higher than
men between April 2020 and June 2020. Because of the nature of their
jobs, teleworking is not an option for many women. In fact, in the
United States, about 54 percent of women working in social sectors
cannot telework. In low-income countries, at most only about 12 percent
of the population is able to work remotely. By looking at employment
and trade through a gender lens and understanding the economic
realities of how women are employed, governments around the world would
do well to be deliberate about how they help rebuild supply chains so
as to truly support COVID-19 recovery and not leave 50 percent of the
world's population behind in those efforts.
Question. One of the few agreements that was concluded under the
WTO was the Trade Facilitation Agreement. It went into force in 2017,
and is designed to remove red tape and delays to moving goods.
In your view, how has the Trade Facilitation Agreement fared? Are
there things we should be pressing our trading partners to better
implement? Are there disciplines in that agreement that we need to see
if we can strengthen as part of improving the WTO?
Answer. The WTO's Trade Facilitation Agreement (TFA), which was
completed in December 2013, helps enable a world trading economy by
making it easier for smaller businesses and entrepreneurs to engage in
trade. As we look at updating trade facilitation policies and
regulations for cross-border goods movements, we should try to further
simplify the import process for low-value shipments and recognize that
the rules for moving ocean containers should not be the same as those
for a box with a pair of sneakers, as is currently the case. While the
TFA creates the basis for streamlined and predictable border clearance,
there are additional, more ambitious measures governments can take to
specifically support the significant growth of e-commerce. A few
practical suggestions for facilitating trade through a more robust e-
commerce policy framework include:
Leveraging new technology solutions to reduce administrative
burdens and streamline border processes for low-value shipments;
Simplifying and harmonizing returns processes at the borders,
including simplifying duty and tax drawback procedures;
Encouraging a critical mass of countries to implement
simplified processes to collect duties or taxes (GST, VAT, etc.) on
low-value goods to enable more U.S. exports; and,
Providing for electronic submission of customs declarations
prior to arrival of goods by all modes of transport to allow pre-
arrival processing and immediate release at the border.
______
Question Submitted by Hon. Ron Wyden
Question. As you note in your testimony, trade policy must expand
economic opportunities for women, minority communities, and other
underrepresented groups. Digital trade is a key component to reducing
barriers to entry. In the past year, I have met extraordinary women in
Oregon leveraging the Internet to create small businesses and engage in
international trade. Paula Barnett, who was a witness before this
committee, exports her jewelry using services like the ones UPS
supplies. Rebecca Alexander came with me to mark the passage of the
USMCA Implementation Act and highlight the importance of the digital
provisions. She founded AllGo, an online community for plus-size people
that relies on user reviews, comments, and photos for its very
existence.
How does digital protectionism threaten the ability of U.S. micro
and small businesses to access foreign markets, and what obligations
are critical to breaking down these barriers?
Answer. Digital trade is a key component to reducing barriers to
engage in international trade and promote inclusive growth. E-
commerce's greatest advantages are its less intensive capital and
skills requirements and its lower costs for customer engagement for
small and medium-sized businesses (SMBs). This is especially important
for women who often shoulder the primary responsibility of unpaid care
work and need a means of engaging in economic activity that allows them
to care for their families, but also earn a livelihood.
Unfortunately, the domestic market's digital infrastructure--or
lack thereof--and the strength of a country's trading regime can be
overwhelming obstacles to any entrepreneur's entry into international
commerce. Digital connection (access to the Internet and secure online
payment technology) is integral to boosting exports especially for
SMBs, but many countries do not have this strong foundation. According
to the WTO, just two percent to 28 percent of most countries' offline
SMBs engage in exporting, compared to 97 percent of internet-enabled
SMBs. Even after building a reliable digital connection, a strong
rules-based trade foundation is also needed. Specifically, it is
important in this regard to implement the WTO's Trade Facilitation
Agreement to reduce the time, cost, and complexity of trade for SMBs,
including simplified and harmonized customs procedures.
Data protection and a secure operating environment based on the
rule of law are particularly important. If digital protectionism exists
in the country where American SMBs are exporting or considering
exporting, they run the risk of having less protection of their data
and the risk of not having a safe environment to collect payments or do
business with potential local partners. Protecting the flow of data,
such as with language similar to Chapter 19 of the USMCA, generates
more confidence for SMBs to take the risk of expanding their business
online and exporting their products or services.
The COVID-19 pandemic has added another layer of complexity by
disrupting the social and economic order and accelerating the shift to
e-commerce due to physical distancing. Considering that consumer
behaviors change daily due to COVID-19, retailers and SMBs are forced
to reinvent how they do business, which means more adoption of e-
commerce to sell their products and a need for an efficient digital
infrastructure. Government participation can be pivotal in creating or
improving the digital framework to boost access to e-commerce tools and
improving the ability to more meaningfully engage in cross-border e-
commerce that will support global inclusion growth, advance economic
recovery, and market resiliency.
Systematic collaboration among global policymakers and stakeholders
will be required to establish the digital framework that will
facilitate this access. In shaping this framework, governments must
cooperate with the private sector to create conditions to increase
opportunities for SMBs to access markets and encourage their
participation. This will be particularly necessary as all industries
are vulnerable to COVID-19 supply chain disruption, with the most
affected being those with few sourcing options for critical components
and/or lower inventory levels.
Finally, UPS, in partnership with the Women20, wrote a policy paper
to be presented to the G20 in October. In this document, we emphasize
that the public, private, and civil sectors can narrow the global
gender divide by promoting digital connectivity and programs that
support women-owned and women-led businesses' engagement in e-commerce.
Policymakers, specifically, must codify these protections and promote
practices that ensure all businesses can flourish in the new e-commerce
ecosystem.
______
Question Submitted by Hon. John Cornyn
Question. I recently held a hearing on the Trade Subcommittee that
focused on censorship as a non-tariff barrier to trade. Countries like
China censor American digital content, block our tech companies from
operating in the country, and retaliate against American firms. More
and more, our companies are self-censoring to do business in China.
Meanwhile, we allow Chinese-owned companies like TikTok and others
to operate in the U.S. freely. There is a clear lack of reciprocity.
One witness testified that censorship has cost three tech companies
alone over $34 billion in lost revenue. In the past, countries used to
block their maritime ports to stop the trade of goods. Today, countries
do the same using firewalls and filters to block data and digital trade
flowing through an underwater network of submarine cables.
As we hopefully reform and update the WTO, it is clear that e-
commerce must be a part of the discussion. How can we address the issue
of censorship as a barrier to trade in the context of WTO reform?
Answer. Actions by governments to create ``cyber sovereignty''
through broad censorship of content must be more forcefully opposed by
the U.S. and WTO members. Though the WTO allows members to enact
censorship laws that support public policy goals--safety, morality,
cyber, and national security--the grant of such broad authority is
often over-used, preventing the legitimate flow of goods and services
by foreign firms.
UPS supports U.S. and allied efforts to introduce more discipline
into the use of such exceptions through strengthening the WTO's
standards for transparency in digital rules, and supporting reforms for
the domestic regulation of services. We further support U.S. efforts to
partner with allied countries to promote trust in digital markets
through bilateral and regional agreements, and recommend against the
use of ``cyber sovereignty'' by the U.S. when aimed at restricting the
market access of our trading partners.
______
Questions Submitted by Hon. Patrick J. Toomey
Question. So far, the U.S. has mainly relied on unilateral tariffs
under section 301 to push for market-oriented reforms to the Chinese
market, but these measures hurt Americans, while not having much effect
on Chinese trade practices. But this is not the only way to try and
encourage China to adopt reforms--the U.S. can also work with key
allies and use the WTO rules to encourage China to adopt reforms.
While the WTO may need reform in some key areas, the fact remains
that it has historically been very successful when dealing with China.
Uncovering China's WTO violations is challenging but it can be done,
and the U.S. can use the WTO to hold China accountable, in particular
in relation to the areas of intellectual property protection, forced
technology transfer, and subsidies.
How can the U.S. better utilize the WTO dispute settlement system
in addressing the challenges with China's non-market trade policies?
Answer. Now is the time to rely more on the WTO in our trading
relationship with China, and not less. The ability of the WTO to
resolve disputes between members in fair and lasting ways is critical
to improving our bilateral relationship with China. We support the
efforts to return the WTO to its full operating capacity by re-
constituting the Appellate Body and addressing the concerns of WTO
members, including the U.S., regarding the purpose and effectiveness of
this essential function. We agree that the dispute settlement process
as previously constituted has not supported the role it was intended to
serve, but believe that many of the reforms being recommended, once
implemented, can form the basis for more effective and timely dispute
resolution between trading partners, including China.
We also support getting the WTO and its member countries back to
the negotiating table, to negotiate agreements in new areas such as e-
commerce, and to write rules on those practices and policies that
members believe are unfair and counter to the WTO. The dispute
settlement panels cannot and should not make new rules--the members
need to do that via negotiation.
Question. For those areas of contention that are not well covered
by WTO rules, such as state-owned enterprises, how can the United
States work with our allies within the WTO to develop new rules?
Answer. WTO rules on subsidies and countervailing measures need to
be enhanced. We applaud the work already underway by the U.S. to
partner with like-minded countries in reforming the capabilities for
the WTO to address non-market behavior. The trilateral statement by the
U.S., EU, and Japan is a good step forward. From the perspective of
UPS, we would like to see the scope related to subsidies and pricing in
the services sector more clearly defined.
Question. What are the limits of the WTO in dealing with China, and
how can the U.S. help facilitate reforms to strengthen it?
Answer. The WTO has been limited by certain structural legacies
that impact its ability to address competition issues more directly,
i.e., the requirement for consensus in multilateral negotiations. In
order to reform the organization and strengthen its ability to tackle
new trade issues, the U.S. must continue to work with like-minded
members such as Japan, Australia, and Canada to advance productive
changes in the standards for transparency and reporting, negotiations,
and dispute settlement. By committing to a broad agenda of updates and
reforms, we can ensure the WTO serves the interests of today by
advancing a more fair, inclusive and accountable trade agenda.
Question. Maximizing the effectiveness of the WTO through American
engagement and leadership is in the broad national interest as a means
to provide greater economic stability and prosperity. Detractors say
that the WTO system is ``rigged,'' but the fact remains that the United
States has won 85.7 percent of the cases it has initiated before the
WTO between 1995 and 2018. Almost 39 million jobs rely upon U.S. global
trade, and foreign markets are critical to our agriculture,
manufacturing, and service industries. Economists have found that the
U.S. withdrawing from the WTO would lead to diminished trade growth,
costly market and supply-chain disruptions, and the destruction of jobs
and profits, especially in import- and export-dependent U.S.
industries.
Can you speak to the projected effects of withdrawing from the WTO?
Answer. While the WTO is certainly not perfect, it provides a
fundamental level of consistency and certainty upon which the global
trading system is based. Now more than ever, with the full effects of
the COVID-19 pandemic on the economy still unknown, American businesses
are in need of the stability and clarity provided by the WTO.
Withdrawing from the WTO would be devastating for U.S. businesses
and the already hard-hit U.S. economy. Sixty percent of U.S. trade is
conducted using the WTO rules, with the remainder covered by bilateral
and regional free trade agreements (FTAs). Even for the remaining 40
percent of countries, many of the provisions in such FTAs reference or
build upon existing WTO rules. Withdrawing allows countries around the
world to no longer abide by WTO commitments and levy tariffs and other
barriers to trade against the U.S. By not remaining in the WTO, not
only will it be harder for U.S. businesses to operate internationally
from a financial perspective, but the U.S. will also be left out of
fundamental trade debates happening at the WTO on issues such as e-
commerce, domestic regulation on services, and diverse and inclusive
trade. UPS remains committed to the success of the organization and
advocates against withdrawing from the WTO.
Question. Do you believe that the resulting trade barriers from
withdrawal from the WTO would compel some American companies either to
downsize or move offshore?
Answer. With 3 percent of the global gross domestic product (GDP)
traveling through our network every day, UPS has unique insight into
the difficulties of international trade. Even with the predictability
currently provided by the WTO, there are still numerous hurdles
preventing SMBs from expanding internationally, including the cost of
exporting and the complex and outdated nature of the process. While
there is no way to know for sure how the private sector would react,
withdrawing from the WTO and the resulting tariff increases would
create prohibitive hurdles to export for SMBs and encourage larger
multinational companies to relocate their supply chains outside the
U.S. to operate in WTO member economies where they would not face the
same financial and regulatory burdens.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The Finance Committee meets today to discuss how to fix the WTO to
get a better deal for American workers and businesses.
In my view, this whole debate comes down to a choice between two
different approaches. On one hand, you've got the Donald Trump
approach: pull back from the WTO, forfeiting our economic power and
stature to the Chinese Government, and covering up that weakness with a
whole lot of empty ``America First'' rhetoric on the airwaves here at
home. It's the same losing playbook the Trump administration ran on the
Trans-Pacific Partnership, the Paris Climate Agreement, and the World
Health Organization. It obviously won't do much of anything to protect
American workers against trade cheats if Trump hands the Chinese
Government the levers of power. In fact, it'd be a big win for the
trade cheats.
Fortunately, there's bipartisan interest in a smarter approach to
WTO reform, based on addressing the areas where the Chinese Government
routinely games the system at our expense.
The rules that underpin the WTO were crafted more than 2 decades
ago, when China was an economic middleweight. At that time, many hoped
and predicted that joining the WTO would drive China further away from
abusive, one-party control of government, economics, and society. That
obviously did not happen.
Today, China is an economic heavyweight. Much of its growth has
come at our expense. That's because the Chinese Government has broken
rules and violated the commitments it made 2 decades ago. It's also
because 20th-century WTO rules have totally failed to keep up with
21st-century technology.
As a result, there's a long list of trade ripoffs that have wiped
out millions of American jobs. Subsidized state-owned enterprises.
Intellectual property theft. Forced tech transfers. The Great Internet
Firewall. Government-led shakedowns of foreign investors. China uses
those schemes and entities to strong-arm American businesses, steal
American innovations, and rip off American workers.
Under President Xi, the government tightened its grip on power. The
Chinese Government identifies weaknesses in the WTO system and other
multilateral forums, and it seizes on them to further its own self-
interests.
Fixing the WTO is also going to require addressing its Appellate
Body, which hampers the application of U.S. trade enforcement laws to
the detriment of American workers. There is a broad bipartisan view
that WTO dispute settlement must be fixed to clamp down on judicial
overreach.
I'll close with a few other important parts of this debate. First,
a long-running battle against unfair fishing subsidies has the
potential to bear fruit. Senator Crapo and I held a subcommittee
hearing on the issue all the way back in 2010. Senator Portman was
involved in getting these talks off the ground all the way back when he
served as USTR.
The bottom line is that an agreement that curbs fishing subsidies
will protect jobs, fisheries, and promote sustainable oceans.
Accomplishing these priorities is vital. Our oceans are key to
stabilizing the climate and feeding people all around the world. And
our oceans provide trillions of dollars in economic activity, if
nations around the world can protect them.
Second, WTO discussions around digital trade disciplines are at an
earlier stage, but they're also vital to economic development and
empowerment here and abroad. The U.S. needs to work with our allies to
set the rules of the road and set the standard for the free flow of
information and ideas.
On both of those issues, there's no chance at all that the U.S. can
get a better outcome by handing our power to the Chinese Government and
pulling back from the WTO. That's why Democrats and Republicans need to
continue working together on these issues. I believe this committee is
in a position to lead on that debate. And I look forward to our
discussion today.
______
Communications
----------
American Farm Bureau Federation
600 Maryland Avenue, SW, Suite 1000W
Washington, DC 20024
p 202-406-3600
f 202-406-3606
https://www.fb.org/
The American Farm Bureau Federation, a general farm organization,
submits these comments for the hearing on ``WTO Reform: Making Global
Rules Work for Global Challenges.''
The World Trade Organization needs to continue to operate even more
effectively to implement rules-based trade agreements on behalf of its
members. While reforms are needed in the institution, the U.S. can most
effectively accomplish those changes as a leader of the organization.
The Uruguay Round Agreements and the dispute-settlement functions
of the WTO have worked to provide a more stable world trading
environment for U.S. agriculture. With more than 20 percent of overall
agricultural production destined for foreign markets, U.S. agriculture
is heavily dependent on exports. The 164-member WTO operates to provide
a rules-based environment for continued growth in markets for America's
farmers and ranchers, and the mill ions of American jobs--most of them
off the farm--that are linked to and dependent on U.S. agriculture.
The implementation of U.S.-supported agreements through the WTO
remains necessary to achieve progress on a wide variety of
international agricultural trade concerns. Agriculture's future
continues to lie in expanding access to foreign markets and eliminating
barriers to our exports.
Active participation by the U.S. will help ensure that necessary
reforms are developed and implemented. Areas for reform include the
operation of the Dispute Settlement System, which is important for
enforcing a binding rules-based framework to resolve trade disputes.
Reform is also needed in the use of special and differential treatment,
especially for those nations that have moved into a developed economy
status. There also needs to be real improvement in securing timely
notifications of trade distorting actions. Negotiations among the
members to address and solve challenges to world trade are a critical
reason for having a WTO. This function needs to be revitalized and
reenergized as the defining feature of the organization. With proper
institutional change the WTO will continue to play an important and
even more effective role in the future for the United States and the
other member nations.
The trade agreements in the WTO also provide an essential framework
for the construction of bilateral and multilateral trade agreements.
Along with tariff reduction and elimination to expand the opportunities
for agricultural trade, the Agreement on Sanitary and Phytosanitary
Standards (SPS) provides a set of standards to improve national efforts
in this area.
Non-tariff trade barriers can take the form of ``standards'' that
are not based on science but are used to restrict trade. The SPS
Agreement must be strengthened to bring the world's agricultural and
food trade fully into the realm of science-based decision making.
Farm Bureau supports efforts to increase agricultural trade through
agreements that reduce and eliminate tariffs and non-tariff trade
barriers.
The U.S. follows a risk-assessment approach for food safety. The
European Union is guided by the ``precautionary principle,'' which
holds that where the possibility of a harmful effect has not been
disproven, non-scientific risk management strategies may be adopted.
The utilization of the ``precautionary principle'' by the EU has
led to many substantive standards that impede agricultural trade, such
as longstanding EU barriers against conventionally raised U.S. beef,
ongoing restrictions against U.S. poultry and pork, and actions that
limit U.S. exports of goods produced using biotechnology. The use of
geographic indications as a trade barrier must be ended.
For U.S. agriculture, the improvements to the SPS Agreement involve
the use of science-based decision making and removing non-science-based
approaches to risk assessment. In particular, the European Union's use
of the ``precautionary principle'' as a reason to restrict certain U.S.
agricultural products highlights the need to reform the areas of the
SPS Agreement that allow for the use of precaution instead of science.
We support a science-based approach to risk management and the use of
science-based international standards, and we oppose the precautionary
principle as a basis for regulatory decision-making.
The use of the ``precautionary principle'' is inconsistent with the
WTO SPS Agreement and is used as a basis for scientifically unjustified
barriers to trade. Both the U.S. and the EU adhere to the World Trade
Organization's SPS Agreement, which states that measures taken to
protect human, animal or plant health should be science-based and
applied only to the extent necessary to protect life or health. Unless
these trade barriers are properly addressed within negotiations, they
will continue to limit the potential for agricultural trade. Scientific
standards are the only basis for resolving these issues.
Any future WTO negotiation on agriculture must be dedicated to
trade liberalization for all countries, must improve the opportunities
for trade and must be designed to work on the issues currently
important to agricultural trade. Focusing our efforts on improving
science-based decision making in the SPS Agreement and expanding market
access through the elimination of tariff and non-tariff trade barriers
will yield real benefits for agricultural trade for all countries.
The World Trade Organization, as an agreed upon basis for rules-
based trade among the nations, has shown its benefits over the decades.
Now is the time to move ahead with a series of reforms that will
increase its usefulness to trade and economic growth.
______
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael G. Bindner
Chairman Grassley and Ranking Member Wyden, thank you for the
opportunity to submit these comments for the record to the Committee on
Finance. Please see our comments to the Committee from March 2019,
``Approaching 25: The Road Ahead for the World Trade Organization,''
which are attached, and its attachment on Employee Ownership. See also
the latest version of our tax reform plan, which has expanded to
include an Asset VAT. To square the circle, our comments to the Trade
Subcommittee of Ways and Means on Global Competitiveness were sourced
by the March 2019 hearings and dealt with the interaction of tax reform
and trade.
Our previous comments explain Regulatory Capture Theory (no agency
succeeds unless it is captured by the industries it regulates--this is
especially the case for trade policy) and how employee-ownership gets
beyond both government regulation and the need to undertake it to
protect workers from capital, while saving both American jobs and
making overseas jobs create the American standard of living for
overseas workers.
Our tax reform plan shows how to get there through both an asset VAT
and personal accounts funded as credit to an employer-paid subtraction
VAT. We also explain how to turn from tariffs to credit invoice value
added taxes (zero rated at the border). The SVAT (not zero rated) is a
vehicle for tax credits for each child, for health care and for
educational expenses. Both are an alternative to personal income tax
filing. Small government libertarians like both, big business
libertarians like neither. They want tax filing to remain painful while
assuring that those with tax shelters can avoid the sure taxation of
invoice VAT.
One year ago, the House Budget Committee did a series of hearings on
the impact of climate change, to which we also commented. The gist of
our comments to the first hearing is that carbon value added taxes
(which is a carbon tax that is receipt visible rather than buried in
the product price) would help fight warming. These follow hearings from
those held in May 2019 by the Ways and Means Committee.
To get the maximum global effect, they would not be border adjusted. To
go to the right place, subsidies for families would come through our
employer-paid subtraction VAT, with carbon VAT funding environmental
research and serve as an incentive to reduce emissions. Such a tax has
no chance of passage, however, unless the alternative of a more robust
regulatory program is the alternative industry wishes to avoid. There
is no such program offered by this administration, although the next is
showing promise.
The second of the hearings dealt with environmental consequences within
the United States from ``Coast to Heartland.'' If the WTO ever has the
power to unilaterally act on climate change issues, there is a
certainty that they have been captured by industry. The other
alternative would require that they become such a powerful
international body that QAnon will dedicate a page to them.
Whether or not it is captured, the WTO, as an international
organization, is an assembly of sovereigns rather than a sovereign
assembly. Campaign finance reports show how sovereign assemblies can be
captured as well (no offense intended, at least not much). For such
organizations to have any weight at all, they would require direct
election by citizens. Until all member nations have a decent respect
for human rights and contested elections, including our own regarding
voter suppression efforts, there can be no such international assembly.
Let us hope that the police actions in the Ranking Member's home state
are not reflective of future attempts at electoral mischief.
In my comments on coast to heartland, I addressed the problems of food
and of sea level inundation in Asia and Micronesia and how it will
produce a surge in migration inland and to our borders. I will develop
them further here, rather than simply attaching them.
Given recent incidents leading to marches on police brutality, as well
as the general poverty among the newly arrived, I am not sure why
anyone wants to migrate here, but they still do. It may be the air
conditioning (which is part of the climate change problem). The irony
is that the anarchists at some of the recent marches, rather than the
local protestors, cut their teeth protesting against the WTO, World
Bank and IMF, starting in Seattle.
Domestically, inundation impacts families who have been there for
generations, vacationers and the very wealthy. Flood insurance has
provided the last with no incentive to support remediation efforts. We
pay, they rebuild. If we capped repayments at $200,000, (assuming
Congress could get away with it), the wealthy would have skin in the
game and support remediation. Of course, this has little to do with the
work of the WTO.
The literature on WTO reform is concerned with the role of developing
countries and of data, depending on who is writing the report. Tax
policy experts want corporate data reported internationally (see the
work of Joshua Meltzer of the Brookings Institution, who should be a
future witness on this topic).
Food is a huge issue in trade reform. American international food
programs tend to have aid show up just before the harvest. While it
does feed the people when in most need, it also tends to depress the
sale price of domestic crops. In other words, these policies often
benefit the Chairman's home state of Iowa more than the recipients of
food aid.
The way we grow our food in America is effective in that very little
work produces a lot of food, but it leads to environmental degradation
in terms of soil loss, chemicals used and waste produced by factory
farms. If there were a subsidized market for farm waste to be converted
to fertilizer, even though it may be more expensive than other nitrogen
sources, progress could be made--especially if the result can be
exported--although as the world's workers are made wealthier by
capitalism, they will eat more meat and create enough of their own farm
waste.
Current vegetable based ``meat'' alternatives are all the rage, but
they are not healthy for people with carbohydrate issues (which is most
Americans). Cloned meat is an expensive and unsatisfying experience, at
least until cloned blood, bone and fat are created and added, with 3D
printing processes turning the result into a better facsimile of a
steak or real ground beef.
In the current economy, this is unlikely. Unless a methane tax is
assessed against farmers, to go along with carbon taxation, such
developments will never pass--at least not until global warming becomes
extreme or processes become much cheaper than they are now. Fear of
nuclear war or COVID type viruses may also spur the development of
alternative sources for protein. As we are finding out, fear sells.
The other way to spur alternative food production, such a printed
cloned meat, is space exploration. Currently, potential Mars missions
include how to do space food. A billion dollars in defense research and
development transferred to NASA can create what the market will not
touch. Shifting NASA from the Other Independent Agencies appropriation
to the Defense subcommittee would make such transfers easier to manage.
Cutting the defense budget to increase other high-tech jobs rather than
the amorphous demand for social and educational spending is much more
palatable.
If there is no necessity, there will be no invention. The environmental
necessity of shifting away from current animal husbandry is not as
obvious unless you believe in animal rights, live near a factory farm
or wish to fish the Severn River. The clean water crisis makes the
problem more acute. The person who made a billion shorting the housing
market is now working on investments having to do with water.
As your last witness will likely mention, agricultural runoff may be a
major problem for the oceans (I am sure stronger language will be
used). Like COVID, much of the impact of humans on the ocean is
probably misunderstood. There is much more ocean to explore than we
have to date and it appears that life there is very robust. A major
function of life is adaptability. Even on the ocean floor, we have
microbes that eat oil. The human environment is at risk. The planet
seems to take care of itself rather nicely.
Space exploration will make artificial and closed loop environmental
food production both feasible and cheap. In a capitalistic society, it
may not be cheap enough. In a world in which fresh water is probably
the biggest planetary challenge, one that climate change may
exacerbate, the capability to grow your own food, including meat, and
process your own water, may be attractive. Interest costs for a home,
let alone an environmentally efficient home, are far in excess of the
actual price of the structure, making it a non-starter in a capitalist
economy. Only a cooperative economy will produce the demand for
alternative food production and the means to both build and finance it.
A state socialist economy cannot produce anything but weapons and
vodka. A voluntary cooperative economy can produce everything. State
action, however, along with developmental aid, has a high potential for
success in dealing with desalinization. In the short term, simply
getting fresh water and effective sewage is a bigger short-term
challenge, as is corruption. Corruption also interferes, although the
current administration is showing that the developing world has no
monopoly on corruption.
Be that as it may, significant international investment, particularly
with government sponsorship, is essential in producing cheap clean
water. Plastic water bottles create pollution in the ocean, may raise
estrogen levels in men and are not as tasty as a good glass of Army
Corps of Engineers processed water in the national capital region. The
very idea makes one thirsty. That thirst should not be held hostage to
capitalist schemes when public works solutions are available. Capture
by industry of the WTO and/or the United States Senate must not get in
the way of an essentially free glass of water.
For both information and development, cooperative economic systems are
superior to such bodies as the WTO, World Bank or the USDA Foreign
Agricultural Service. A public sector economic research agency, either
U.S. or international, could be helpful in comparing prices and
standards of living from nation to nation. The price of a hamburger in
China is not the price of a hamburger in Iowa or Washington, DC
(Douglass Commonwealth, if you please).
Economists calculate purchasing power parity, although determining the
common market basket will be contentious. Whether industry and finance
will allow it is an even more relevant question. A monthly report on
PPP would need a variety of market baskets: one for subsistence of the
poor, one for factory labor--both union and non-union states and
households, one for the professional class and not one for the rich--
for whom money is no object and who buy for prestige as much as usage.
Ideally, PPP information would have as big an impact on currency prices
as the operations of the public banking system (i.e., the Federal
Reserve, European Central Bank, etc.). Perfect competition requires
perfect information. Capitalism, however, seeks to make information a
private good. Keeping wage and cost information secret is why
capitalism can exist at all. If workers knew what their real productive
value is, they would be paid better. If consumers knew the underlying
price of goods, they would pay less. Expecting the WTO or Federal
Reserve to provide international information on these very things is
very unlikely, given the reality of capture by regulated interests.
Employee-owned firms, as described in the attachments, would have an
incentive to know and use PPP information. Indeed, capitalist firms
would not have such an incentive. Capitalist firms make money on the
margins and play one side against the other. Employee-owned
international firms would maximize worker/member well-being. Wages
would be set by PPP levels, which ``overvalues'' foreign labor and thus
protects domestic workers from labor arbitrage.
Employee-owned firms are also more likely to be early adopters of
advanced food production techniques, which take the most essential
goods, food and water, out of the marketplace and into the home. Think
of how many fewer hours one could work without having to buy your own
food or pay interest on everything from homes to student loans! This is
even before considering the fact that most cooperativists are also very
likely to be environmentalists as well. It seems to be a package deal.
International employee-ownership makes economic development
unnecessary. While capitalism, because it takes low skill and low need
workers into more skilled workers and consumers is a powerful engine
for development. There is no argument about that. Our contention,
however, is that given the option to get the same job in a well-run
employee-owned enterprise, there would be no contest. Capitalism would
fail, as would government.
I have two final points, ones that are not found in any previous
comments for the record.
Point One: Discussions of trade are about labor, who does it and who
buys it. Not my idea. It is the essence of Marxism. Marx was as much
about social relations as he was about the mechanics of production. The
implication for the WTO is that any reform of trade rules must also
involve rules governing migration (again, going back to our
environmental refugees from Micronesia).
The current Administration does not understand either one of these with
any clarity. The two areas where the President has the freest hand are
also where he has made the most mistakes. Any reform of trade should
both cut any President's wings and must relate the two more closely.
WTO talks must also be migration talks or they are flying blind.
Point Two: I had hoped that the COVID slowdown and the current solar
minimum might have had an impact on short-term warming. Maybe it has
overall. The prior certainly impacted wildlife management and cleared
the air when America was shut down. The current heat wave, however, has
proven that short-term factors and local factors may be two very
different thing. Still, it would be interesting to see if there is any
impact on planetary temperature data.
It begs the imagination to assume that long-term carbon and methane
usage are the only factors affecting climate change. If we can prove
that short-term climate changes exist (we know that volcanoes have an
impact already), we can make our models better. This assumes we can
recover from the damage inflicted on our public scientific
infrastructure by the current Administration.
The Center for Fiscal Equity's left-wing bias is well known, but the
Trump presidency has forced us to make it obvious. Please note that our
biases are also on the libertarian side. Please keep this in mind when
making lists of witnesses.
Thank you for the opportunity to address the committee. We are, of
course, available for direct testimony or to answer questions by
members and staff. We also do Zoom.
Attachment--Finance: ``Approaching 25: The Road Ahead for the World
Trade Organization,'' March 12, 2019
Regulatory capture theory is essential to explain how international
trade associations work, from NAFTA to the WTO. Capture theory, which
is part of the Public Choice School of economics, is associated with
George Stigler and others. While it is usually associated with national
and state regulation, such as the Food and Drug Administration and the
late, great Interstate Commerce Commission, it is equally applicable
here. It is similar to what we all learned as Iron Triangles or Issue
Networks.
The gist of the theory is that, while regulation is initially
promulgated for the public good, relationships between government and
regulated industries grow symbiotic. This occurs because professional
expertise is often industry specific. This expertise is interchangeable
in regulated industries, regulatory staff, on K Street, the academy and
congressional staff. Campaign contributions often grease the skids of
communication. Regulation always begins with private sector resistance
until relationships are established. Eventually, regulatory agencies
are co-opted by industry and the resistance stops. While there is still
an oppositional dynamic, by and large capture helps steer the
regulatory ship.
Capture is so complete in trade that industrial panels are often the
most important part of modern trade agreements. In NAFTA, these take
the form of Chapter 19 Panels. These panels wield super-national
authority, allowing them to over-ride governmental actions which are
seen as contrary to free trade as the industry sees it. Such industrial
favoritism is likely the glue that gets trade agreements past
congressional approval. While treaties are part of federal supremacy in
Article IV of the Constitution, ceding this authority to industry is
likely beyond what the framers would have expected--and they were often
mercantilists. Of course, the U.S. Constitution may itself be an
instance of regulatory capture.
The impact of capture are very real barriers to entry, both for
professionals and for newer companies. Larger firms dominate small
ones, who must find a link to an existing larger company in order to
even function. While regulations favoring small businesses attempt to
steer such relationships, especially by introducing affirmative action
into such decisions, these actions are also captured by industry.
Many would say that the status quo is unsustainable, others like it
perfectly well. Progressives and Democratic Socialists call for bigger
and better regulations. The far-left simply considers this an
improvement of the same cage. The social democracies of northern Europe
have developed a cozy relationship with their capitalists, but have no
idea how to transition to true employee sovereignty, which is the
ultimate goal of socialism. The answer is that you cannot do deep
reform through the deep state. The obstacles are too great.
The only alternative to regulatory capture and industrial domination is
not to better regulate capitalism, but to overcome it--not through
revolution (which simply turns the party bureaucrats into capitalists),
but to occupy capitalism from within. This starts with transforming
employee-owned firms. The answer is not change to employee culture over
a monthly dinner and pep rally or training line workers to read
financial statements. This is also a creating a better cage.
Real change will come from matching corporate governance to corporate
ownership. Hierarchical management structures from capitalism are
discordant. They do not deliver on the promise of ownership. Employee
ownership, to work, must embrace true democracy in both management and
the decision to expand the scope of the enterprise from better
production to matching production to consumption, also by democratic
decision-making. This will start with how leadership is consumed as a
good (leading to open auction for executive jobs with the final choice
between the low bidders determined by election).
Employee ownership will continue from decisions on the cafeteria menu
to local sourcing and farm ownership, building or buying apartments for
younger workers, as well as single family units and abandoning outside
finance for retirement and home mortgages with no interest loans. Such
features will attract workers and firms to this model to something more
than the monthly chicken dinner.
Currently, employee ownership is undertaken with smaller companies
rather than major industries. It will not remain there when ownership
is transformed. Larger enterprises will convert franchisees to managers
and absorb their employees, extending union membership and board
representation. Consultants paid through 1099 employment with only one
client also be added to the employing firm.
The NBRT/SVAT reforms can facilitate the expansion of ownership on a
fairly rapid basis, with rates set high enough to pay for obligations
to current retirees and the transition to ownership. While the employee
contribution to Old-Age and Survivors insurance will continue to be
linked to income, the employer contribution will become part of the
SVAT, with employer contributions credited to each employee without
regard to wage.
Ownership rights and benefits can also be extended to overseas
employees, both subsidiaries and in the supply chain, preventing
international trade from being used to arbitrage wages in a race to the
bottom, raising the standard of living for overseas workers and ending
the need for international trade agreements. Industrial and workers
interests will be identical to each other and to the national interest
of all parties. International organizations could be an honest broker
to estimate wages at an equivalent standard of living rather than based
on currency trading.
It can go even faster if employers can reduce such taxation by making
current employees, former employees and retirees whole as if they had
worked under the proposed system from the start. If our proposed high
income and inheritance surtax is adopted (where cash from inheritances
and estate asset sales are considered normal income), some of the
proceeds can be used to distribute the Trust Fund to speed employee
ownership, as well as ESOP loans. Note that heirs, sole proprietors and
stock holders who share to a broad-based ESOP will avoid taxation on
that income, including our proposed 25% VAT on asset sales.
Expediting ownership with the assistance of tax reform will end the
need for NAFTA and the WTO (unless national governments balk at
allowing international employee ownership). Even then, the need for
such organizations, and for government in general, will eventually fade
away.
Attachment--Value-Added Taxes (March 2018), Employee Ownership and
Trade (February 2019)
The most immediate impact on trade is our proposed goods and services
tax, which will finance domestic military and civil spending. Exported
products would shed the tax, i.e., the tax would be zero rated, at
export. Whatever VAT congress sets is an export subsidy. Seen another
way, to not put as much taxation into VAT as possible is to enact an
unconstitutional export tax.
The NBRT/Subtraction VAT could be made either border adjustable, like
the VAT, or be included in the price. This tax is designed to benefit
the families of workers, either through government services or services
provided by employers in lieu of tax. As such, it is really part of
compensation. While we could run all compensation through the public
sector and make it all border adjustable, that would be a mockery of
the concept. The tax is designed to pay for needed services. Not
including the tax at the border means that services provided to
employees, such as a much-needed expanded child tax credit--would be
forgone. To this we respond, absolutely not--Heaven forbid--over our
dead bodies. Just no.
Personal Accounts would not be used for speculative investments or even
for unaccountable index fund investments where fund managers ignore the
interests of workers. Accounts invested in index funds do not have that
feature, although they do serve to support American retirees who
because of them have a financial interest in firms utilizing foreign
labor, particularly low-wage Chinese labor.
The tendency for consumerism to follow industrialization is why
globalization is a poor substitute for expanding the domestic
population, as the Center proposes with its expanded Child Tax Credit,
which we propose as an offset to the NBRT.
It would be better for all concerned if American workers were already
in an ownership position due to repeal of the Taft-Hartley Act
prohibitions on concentrated pension fund ownership and the enactment
of personal retirement accounts. We can turn the tide for workers and
encourage employee-ownership (aka cooperative socialism) now through
Democratic means as part of a Green New Deal.
Over a fairly short period of time, much of American industry, if not
employee-owned outright (and there are other policies to accelerate
this, like ESOP conversion) will give workers enough of a share to
greatly impact wages, management hiring and compensation and dealing
with overseas subsidiaries and the supply chain--as well as impacting
certain legal provisions that limit the fiduciary impact of management
decision to improving short-term profitability (at least that is the
excuse managers give for not privileging job retention).
Employee-owners will find it in their own interest to give their
overseas subsidiaries and their supply chain's employees the same deal
that they get as far as employee-ownership plus an equivalent standard
of living. The same pay is not necessary, currency markets will adjust
once worker standards of living rise.
Attachment--Tax Reform, Center for Fiscal Equity, February 21, 2020
Individual payroll taxes. These are optional taxes for Old-Age and
Survivors Insurance after age 60 (or 62). We say optional because the
collection of these taxes occurs if an income-sensitive retirement
income is deemed necessary for program acceptance. Higher incomes for
most seniors would result if an employer contribution funded by the
Subtraction VAT described below were credited on an equal dollar basis
to all workers. If employee taxes are retained, the ceiling should be
lowered to $75,000 reduce benefits paid to wealthier individuals and a
floor should be established so that Earned Income Tax Credits are no
longer needed. Subsidies for single workers should be abandoned in
favor of radically higher minimum wages.
Wage Surtaxes. Individual income taxes on salaries, which exclude
business taxes, above an individual standard deduction of $75,000 per
year, will range from 6% to 36%. This tax will fund net interest on the
debt (which will no longer be rolled over into new borrowing),
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the
result of battlefield injuries, including mental health and addiction
and eventual debt reduction. Transferring OASDI employer funding from
existing payroll taxes would increase the rate but would allow it to
decline over time. So would peace.
Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes,
dividend taxes, and the estate tax. It will apply to asset sales,
dividend distributions, exercised options, rental income, inherited and
gifted assets and the profits from short sales. Tax payments for option
exercises and inherited assets will be reset, with prior tax payments
for that asset eliminated so that the seller gets no benefit from them.
In this perspective, it is the owner's increase in value that is taxed.
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will
fund the same spending items as income or S-VAT surtaxes. This tax will
end Tax Gap issues owed by high income individuals. A 24% rate is
between the GOP 20% rate and the Democratic 28% rate. It's time to quit
playing football with tax rates to attract side bets.
Subtraction Value-Added Tax (S-VAT). These are employer paid Net
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including
Health insurance or direct care, including veterans' health care
for non-
battlefield injuries and long-term care.
Employer paid educational costs in lieu of taxes are provided as
either
employee-directed contributions to the public or private unionized
school of their choice or direct tuition payments for employee children
or for workers (including ESL and remedial skills). Wages will be paid
to students to meet opportunity costs.
Most importantly, a refundable child tax credit at median income
levels (with inflation adjustments) distributed with pay.
Subsistence level benefits force the poor into servile labor. Wages and
benefits must be high enough to provide justice and human dignity. This
allows the ending of state administered subsidy programs and
discourages abortions, and as such enactment must be scored as a must
pass in voting rankings by pro-life organizations (and feminist
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.
The S-VAT is also used for personal accounts in Social Security,
provided that these accounts are insured through an insurance fund for
all such accounts, that accounts go toward employee-ownership rather
than for a subsidy for the investment industry. Both employers and
employees must consent to a shift to these accounts, which will occur
if corporate democracy in existing ESOPs is given a thorough test. So
far it has not. S-VAT funded retirement accounts will be equal dollar
credited for every worker. They also have the advantage of drawing on
both payroll and profit, making it less regressive.
A multi-tier S-VAT could replace income surtaxes in the same range.
Some will use corporations to avoid these taxes, but that corporation
would then pay all invoice and subtraction VAT payments (which would
distribute tax benefits. Distributions from such corporations will be
considered salary, not dividends.
Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
purchase invoices. The rate varies according to what is being financed.
If Medicare for All does not contain offsets for employers who fund
their own medical personnel or for personal retirement accounts, both
of which would otherwise be funded by an S-VAT, then they would be
funded by the I-VAT to take advantage of border adjustability. I-VAT
also forces everyone, from the working poor to the beneficiaries of
inherited wealth, to pay taxes and share in the cost of government.
Enactment of both the A-VAT and I-VAT ends the need for capital gains
and inheritance taxes (apart from any initial payout). This tax would
take care of the low-income Tax Gap.
I-VAT will fund domestic discretionary spending, equal dollar employer
OASI contributions, and non-nuclear, non-deployed military spending,
possibly on a regional basis. Regional I-VAT would both require a
constitutional amendment to change the requirement that all excises be
national and to discourage unnecessary spending, especially when
allocated for electoral reasons rather than program needs. The latter
could also be funded by the asset VAT (decreasing the rate by from
19.5% to 13%).
As part of enactment, gross wages will be reduced to take into account
the shift to S-VAT and I-VAT, however net income will be increased by
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will
replace pass-through and proprietary business and corporate income
taxes.
Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility,
which allows comparison shopping based on carbon content, even if it
means a more expensive item with lower carbon is purchased. C-VAT would
also replace fuel taxes. It will fund transportation costs, including
mass transit, and research into alternative fuels (including fusion).
This tax would not be border adjustable.
______
Letter Submitted by Terence P. Stewart
August 4, 2020
U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200
This statement is submitted for the record in the above identified
hearing. My name is Terence P. Stewart. I practiced law in Washington,
DC for roughly 40 years, focused on trade remedy and GATT/WTO matters.
While I retired last August, I have written extensively on the
challenges posed to the United States by the WTO dispute settlement
system and currently author a blog entitled, Current Thoughts on Trade.
The link to the blog is https://currentthoughtsontrade.com.
When the World Trade Organization came into existence in 1995, many in
Congress were concerned about potential loss of sovereignty if the WTO
dispute settlement system created rights or obligations that were not
contained in the WTO agreements. As early as the Trade Act of 2002,
Congress insisted on action by the Administration to address problems
in trade remedy cases where the WTO Appellate Body was perceived to
create obligations that the U.S. had never agreed to.
Blockage of filling vacancies in the WTO Appellate Body by the United
States has led to WTO Members, after nearly twenty years of U.S.
concerns, finally recognizing the problems of concern to the United
States (and some other countries). While proposals have been put
forward by other countries at the WTO to address many of the procedural
issues raised by the U.S., there has not been agreement by major
trading partners that gap filling and eliminating discretion where
agreements have ambiguity must be addressed. Similarly, to achieve the
rebalancing of rights and obligations that were agreed during the
Uruguay Round, countries must come to grip with how to correct prior
decisions that resulted in a change of rights and obligations actually
negotiated. Finally, on the procedural issues, the U.S. has concerns
that fixes proposed won't actually provide certainty that the Appellate
Body will change its practices. Thus, parties need to consider how to
make the provisions of the Dispute Settlement Understanding enforceable
by the WTO Members.
I have in several blog posts reviewed efforts by the WTO to address
U.S. concerns and have provided thoughts on how the proposals could be
made enforceable and how the core issues of overreach can be corrected
both going forward and in the context of prior decisions. I provide the
most recent post below, https://current
thoughtsontrade.com/2020/07/12/wtos-appellate-body-reform-revisiting-
thoughts-on
-how-to-address-u-s-concerns/.
WTO Appellate Body Reform--Revisiting Thoughts
on How to Address U.S. Concerns
In a November 4, 2019 post, I reviewed a draft General Council Decision
that had been presented by Amb. David Walker to the General Council on
addressing some of the concerns presented over the last several years
by the United States with the functioning of the WTO's Appellate Body.
The United States has been blocking the process for selecting new
Appellate Body members until its longstanding concerns are addressed.
See WTO's Appellate Body Reform--The Draft General Council Decision on
Functioning of the Appellate Body, https://currentthoughtsontrade.com/
2019/11/04/wtos-appellate-body-reform-the-draft-general-council-
decision-on-functioning-of-the-appellate-body/.
The Appellate Body ceased to have at least three members on December
11, 2019 at which point it could not hear new appeals. Moreover, only
appeals that had gone through hearings were handled after December
10th, with the last report released last month.
The United States released in February a lengthy Report on the
Appellate Body of the World Trade Organization which provides a
detailed review of the purpose of dispute settlement in the WTO and the
development of major departures from the agreed language of the Dispute
Settlement Understanding by the Appellate Body over the first twenty-
five years of the WTO's existence. The report was reviewed in an
earlier post. See https://ustr.gov/sites/default/files/
Report_on_the_Appellate
_Body_of_the_World_Trade_Organization.pdf; USTR's Report on the WTO
Appellate Body--An Impressive Critique of the Appellate Body's
Deviation from Its Proper Role, https://currentthoughtsontrade.com/
2020/02/14/ustrs-report-on-the-wto-appellate-body-an-impressive-
critique-of-the-appellate-bodys-deviation-from-its-proper-role/.
While a number of WTO Members have joined together in supporting an
interim arbitration approach, there has been no apparent ongoing effort
to find a resolution to the continuing impasse. Indeed, the interim
arbitration approach adopted by the EU, Canada, China and others in the
view of the U.S. extends and in some cases exacerbates the longstanding
concerns the U.S. has had with the Appellate Body and exceeds the
proper role of arbitration.
There have been any number of proposals by academics, former government
employees and others on what is needed to reform the Appellate Body to
deal with U.S. concerns. The National Foreign Trade Council
commissioned a multi-part report on Resolving the WTO Appellate Body
Crisis from Bruce Hirsch, a former USTR official with significant
responsibilities for dispute settlement matters. See Resolving the WTO
Appellate Body Crisis, Proposals on Overreach (December 2019), http://
www.nftc.org/default/trade/WTO/Resolving%20the%20WT0%20Appellate%20Body
%20Crisis_Proposals%20on%20Overreach.pdf; Resolving the WTO Appellate
Body Crisis Volume 2, Proposals on Precedent, Appellate Body
Secretariat and the Role of Adjudicators (June 2020), http://
www.nftc.org/default/Trade%20Policy/WTO_
Issues/Resolving%20the%20WTO%20AB%20Crisis%20vol2%2006042020.pdf. His
two papers make an important contribution to those interested in
finding a forward path on restoring a second stage to the WTO's dispute
settlement system.
Specifically, Mr. Hirsch's two papers address a number of important
issues with suggestions presented for possible approaches to help move
the WTO dispute settlement system back to what was agreed to in the
Dispute Settlement Understanding which became operative in 1995 when
the WTO was created.
The NFTC press releases on the two papers provides the following
summary of proposals in each paper. From the December 17, 2019 press
release:
The paper includes six key proposals:
1. Enforce the 90-day time frame for appeals;
2. Prohibit advisory opinions, and further elaborate the circumstances
constituting advisory opinions;
3. Clarify that DSU Article 3.2 does not justify expanding or
narrowing the reach of WTO provisions or filling gaps in WTO coverage;
4. Clarify that customary rules of interpretation of public
international law do not justify gap-filling and expanding or narrowing
the reach of WTO provisions;
5. Affirm that Article 17.6(ii) of the Antidumping Agreement must be
given meaning, by clarifying that the provision reflects the principle
just described, that WTO adjudicators may not expand or narrow the
meaning of broad provisions and general terms; and
6. Direct the Appellate Body to reject party arguments that expand or
narrow the reach of agreement provisions or fill gaps in agreements.
From the June 5, 2020 press release:
Specifically, the paper outlines 3 proposals that will help ``reflect
the goal of making the Appellate Body operate as Members expected in
1995:''
1. Clarify that Appellate Body reports do not create binding
precedent;
2. Replace the Appellate Body secretariat with clerks seconded from
the WTO secretariat; and
3. Guidance on the Role of Adjudicators.
The two papers are an effort to help WTO Members focus on moving
forward on bringing the Appellate Body's role in the Dispute Settlement
system back to its intended limited function.
The first paper which deals with the critical issue of overreach also
takes in issues such as advisory opinions and adherence to the timeline
for completing appeals (absent party consent) which Mr. Hirsch views as
often interrelated. If there is a problem with the first paper it is in
not addressing how to restore balance to WTO Members by correcting
prior cases where overreach occurred. This has been an issue of some
importance to the United States and is critical in a number of
agreements where there has been a pattern of decisions changing rights
and obligations.
In a prior post from November 12th, I reviewed the large number of WTO
Members who have expressed concern about the Appellate Body creating
rights or obligations not contained in the WTO Agreements. See
Background Materials on WTO Appellate Body Reform Challenges--The
Critical Issue of ``Overreach,'' https://currentthoughtsontrade.com/
2019/11/12/background-materials-on-wto-appellate-body-reform-
challenges-the-critical-issue-of-overreach/.
The second paper by Mr. Hirsch addresses a number of important issues
although only the issue of precedent is on the list of concerns raised
by the United States. However, Mr. Hirsch makes a strong case that the
structure of the Appellate Body Secretariat has likely contributed to
the development of problematic issues such as precedent, and his
recommendations make a lot of sense and would return control of the
Appellate Body process to Appellate Body members.
Mr. Hirsch notes that there is a lack of trust amongst WTO Members,
which certainly reflects the current environment. His proposals are all
focused on what he perceives to be a view with which all Members should
be able to agree--reform the Appellate Body to ensure it performs the
limited role articulated in the Dispute Settlement Understanding. I
agree with both his observation on the lack of trust (and the need to
develop trust through actions) and what the objective of reform can and
should be. I differ only in what type of actions Members can take to
ensure compliance by the Appellate Body with the limited role it is to
play in dispute settlement.
His two papers do not suggest that all issues raised by the U.S. have
been addressed in his papers (not clear if there are additional papers
yet to be released). Nor is it the intention of his papers to suggest
language amendments to the draft General Council Decision put forward
by the then facilitator to the General Council, Amb. David Walker (NZ).
As an aid to readers, I have copied my November 4, 2019 recommended
modifications to the draft General Council Decision below. The
intention of my edits to the draft Decision was to provide changes
reflecting the underlying purpose of the DSU that would be enforceable
by the parties to disputes and to suggest an approach to deal with
overreach that would deal with the past cases and not simply the future
disputes. As one of the objectives of the U.S. is restoring the balance
that was agreed to in the negotiated texts, I believe any resolution of
the Appellate Body impasse has to identify a path forward on past
decisions. The next paragraph and the modified draft General Council
Decision are copied verbatim from my November 4th post. There are
obviously many excellent ideas in papers from experts like Mr. Hirsch.
My suggestions may add some flavor or different options on a number of
issues that need to be addressed.
Excerpt from November 4, 2019 Post
What follows is my personal effort to identify some consequences of
actions that have long concerned the United States. Obviously, only the
U.S. can determine what will address its concerns. But possibly some of
the following suggestions, if part of any final package, could address
some of the ongoing and longstanding U.S. concerns. The text, other
than what is both in bold and underlined, is the draft General Council
Decision that is contained as an Annex to Amb. Walker's October 15,
2019 report to the General Council. Job/GC/222. Only one number has
been deleted--``6'' (60 days has been changed to 90 days under the
first topic).
DRAFT GENERAL COUNCIL DECISION ON FUNCTIONING OF THE APPELLATE BODY
The General Council,
Conducting the function of the Ministerial Conference in the interval
between meetings pursuant to paragraph 2 of Article IV of the Marrakesh
Agreement Establishing the World Trade Organization (the ``WTO
Agreement'');
Having regard to paragraph 1 of Article IX of the WTO Agreement;
Mindful of the work undertaken in the Informal Process of Solution-
Focused Discussion on Matters Related to the Functioning of the
Appellate Body, under the auspices of the General Council;
Recognizing the central importance of a properly functioning dispute
settlement system in the rules-based multilateral trading system, which
serves to preserve the rights and obligations of Members under the WTO
Agreement and ensures that rules are enforceable;
Desiring to enhance the functioning of that system consistent with the
Understanding on Rules and Procedures Governing the Settlement of
Disputes (the ``DSU'') ;
Decides as follows:
Transitional rules for outgoing Appellate Body members
Only WTO Members may appoint members of the Appellate Body.
The Dispute Settlement Body (the ``DSB'') has the explicit authority,
and responsibility, to determine membership of the Appellate Body and
is obligated to fill vacancies as they arise.
To assist Members in discharging this responsibility, the selection
process to replace outgoing Appellate Body members shall be
automatically launched 180 days before the expiry of their term in
office. Such selection process shall follow past practice.
If a vacancy arises before the regular expiry of an Appellate Body
member's mandate, or as a result of any other situation, the Chair of
the DSB shall immediately launch the selection process with a view to
filling that vacancy as soon as possible.
Appellate Body members nearing the end of their terms may be assigned
to a new division up until 90 days before the expiry of their term.
An Appellate Body member so assigned may complete an appeal process in
which the oral hearing has been held prior to the normal expiry of
their term if completing such appeal is consistent with Article 17.5 of
the DSU or any mutually agreed extension by the parties.
90 Days
Consistent with Article 17.5 of the DSU, the Appellate Body is
obligated to issue its report no later than 90 days from the date a
party to the dispute notifies its intention to appeal.
In cases of unusual complexity or periods of numerous appeals, the
parties may agree with the Appellate Body to extend the time-frame for
issuance of the Appellate Body report beyond 90 days. I Any such
agreement will be notified to the DSB by the parties and the Chair of
the Appellate Body.
Failure to complete the appeal within 90 days of the notification of
intent to appeal, or such other time as the parties agree to, shall
result in the appeal terminating with no decision. In such situations
the Dispute Settlement Body will consider adoption of the panel report
but rights of the complaining party under Articles 21.6 and 22 of the
DSU shall not apply.
The Appellate Body will supply the Dispute Settlement Body with a
description of steps taken by the Division to complete any such appeal
within 90 days and any modifications to Appellate Body procedures and
practice that will be pursued by the Appellate Body to ensure such
failure to comply with the 90 day rule is not repeated.
1 Such agreement may also be made in instances of force majeure.
Municipal Law
The ``meaning of municipal law'' is to be treated as a matter of fact
and therefore is not subject to appeal. Where the Appellate Body
nonetheless addresses the meaning of municipal law in an Appellate Body
report, either party may request that the paragraphs of the Appellate
Body report dealing with such issue or issues and any conclusions drawn
there from be stricken, and the Appellate Body will reissue the
decision without such paragraphs forthwith. Compliance with the 90 day
requirement will be measured from the date of the revised decision.
The DSU does not permit the Appellate Body to engage in a ``de novo''
review or to ``complete the analysis'' of the facts of a dispute.
Consistent with Article 17.6 of the DSU, it is incumbent upon Members
engaged in appellate proceedings to refrain from advancing extensive
and unnecessary arguments in an attempt to have factual findings
overturned on appeal, under DSU Article 11, in a de facto ``de novo
review.'' Where Article 11 is invoked by a Member seeking review on
appeal of whether the panel failed to make an objective assessment, any
other party may file an objection. The Appellate Body will consider the
claim only in extraordinary circumstances of facial bias in the
assessment by the panel. A Member raising such a claim that is
dismissed will be assessed costs to the Member who filed an objection.
Advisory Opinions and Appellate Body Economy in Decisions
Issues that have not been raised by either party may not be ruled or
decided upon by the Appellate Body. Where issues not raised by either
party are addressed in the Appellate Body report, the addressing of
such issues constitutes the provision of an advisory opinion and is
inconsistent with DSU Article 17.12. Either party may request that the
paragraphs of the Appellate Body report dealing with such issue or
issues and any conclusion based thereon be stricken, and the Appellate
Body will reissue the decision without such paragraphs forthwith.
Compliance with the 90 day requirement will be measured from the date
of the revised decision.
Consistent with Article 3.4 of the DSU, the Appellate Body shall
address issues raised by parties in accordance with DSU Article 17.6
only to the extent necessary to assist the DSB in making the
recommendations or in giving the ruling provided for in the covered
agreements in order to resolve the dispute. The Appellate Body's
indicating that other issues raised need not be addressed to resolve
the dispute satisfies the requirements of DSU Article 17.12.
Precedent
Precedent is not created through WTO dispute settlement proceedings.
Consistency and predictability in the interpretation of rights and
obligations under the covered agreements is of significant value to
Members.
Panels and the Appellate Body should take previous Panel/Appellate Body
reports into account to the extent they find them relevant in the
dispute they have before them. The Appellate Body shall not reverse a
panel decision on any issue solely on the basis of the panel not
conforming to a prior Appellate Body report where the panel has
identified different factual and/or legal issues.
``Overreach''
As provided in Articles 3.2 and 19.2 of the DSU, findings and
recommendations of Panels and the Appellate Body and recommendations
and rulings of the DSB cannot add to or diminish the rights and
obligations provided in the covered agreements. In a large number of
Panel and Appellate Body reports, one or more parties and/or third
parties have raised concerns about the Panel or Appellate Body adding
to or diminishing the rights and obligations contrary to Articles 3.2
or 19.2 of the DSU.
To clarify situations where rights and obligations are being added to
or diminished, Panels and the Appellate Body will not fill gaps in
agreements, construe silence to indicate obligations or construe
ambiguities in language of existing agreements to require a particular
construction. Any such actions by a Panel or by the Appellate Body is
inconsistent with Articles 3.2 and 19.2 of the DSU.
Any party to an Appellate Body report that raised at the DSB meeting
considering adoption of the Appellate Body report concerns about the
creation of rights or obligations inconsistent with Articles 3.2 or
19.2, will have 90 days from the adoption of this General Council
decision to request a review of the Appellate Body decision. Such
request will be for the limited purpose of having the Appellate Body
determine whether on the specific issues raised where the party
complained of creating rights or obligations the clarification of
meaning provided in this General Council decision would result in a
changed decision on the particular issue. The Appellate Body will
render decisions on all such requests within 90 days and will accept no
additional briefing or argument from parties. Where the report would
have been different on one or more particular issues, it is sufficient
for the Appellate Body to so indicate. Where the same decision on an
issue would have been made, the Appellate Body shall provide a detailed
explanation.
Panels and the Appellate Body shall interpret provisions of the
Agreement on Implementation of Article VI of the General Agreement on
Tariffs and Trade 1994 (``antidumping agreement'') in accordance with
Article 17.6(ii) of that Agreement. Any party to an Appellate Body
report that raised at the DSB meeting considering adoption of the
Appellate Body report that Article 17.6(ii) was not applied in
interpreting the antidumping agreement, will have 90 days from the
adoption of this General Council decision to request a review of the
Appellate Body decision. Such a request will be for the limited purpose
of having the Appellate Body determine whether a different outcome on
one or more issues would have resulted had the Appellate Body applied
Article 17.6(ii) of the antidumping agreement. The Appellate Body will
render decisions on all such requests within 90 days and will accept no
additional briefing or argument from parties. Where the report would
have been different on one or more particular issues, it is sufficient
for the Appellate Body to so indicate. Where the same decision on an
issue would have been made, the Appellate Body shall provide a detailed
explanation.
Regular dialogue between the DSB and the Appellate Body
The DSB, in consultation with the Appellate Body, will establish a
mechanism for regular dialogue between WTO Members and the Appellate
Body where Members can express their views on issues, including in
relation to implementation of this Decision, in a manner unrelated to
the adoption of particular reports. Such mechanism will be in the form
of an informal meeting, at least once a year, hosted by the Chair of
the DSB.
The Appellate Body Secretariat will prepare and circulate to the DSB at
least 60 days in advance of such a meeting a document which reviews:
(a) for any Appellate Body member whose term is or has expired in the
last 12 months, assignments to appeals within 90 days of the end of the
term and any appeals on which the AB member continued to work after his
term expired and whether such continuation was authorized by the
parties to the appeal;
(b) the time from notification of intent to file an appeal to the AB
decision in each case filed in the last 12 months (and for the first
such report and any subsequent reports where appeals are not current
with the 90 day requirement) to an AB report (or revised report where
paragraphs are requested to be deleted as addressing issues not raised
by any party) and copies of any write-ups filed where reports were not
filed within 90 days;
(c) a list of AB reports where paragraphs were requested stricken and
time from request to rerelease of AB report;
(d) a list of requests for review in appeals pursuant to Article 11 of
the DSU of panel decisions as not being an objective assessment, how
each request was resolved, and for such claims that were not properly
filed whether costs were paid by the party raising the issue;
(e) the number of AB reports where parties requested review based on
statements made at prior DSB meetings that rights or obligations were
being added to or diminished and/or that Article 17.6(ii) of the
antidumping agreement was not applied or was applied inappropriately,
timing of resolution by the Appellate Body and the number of issues
where a different decision was rendered.
Where the Appellate Body has been unable to comply with the
requirements of the DSU as clarified by this General Council Decision,
it is expected that the Appellate Body Chairman will present at the
informal meeting the action plan being pursued by the Appellate Body to
achieve full compliance with the terms of the DSU and this Decision.
To safeguard the independence and impartiality of the Appellate Body,
clear ground rules will be provided to ensure that at no point should
there be any discussion of ongoing disputes or any member of the
Appellate Body other than as it relates to compliance with this General
Council Decision.
Conclusion
There are many reforms needed to bring the WTO into the 21st century
and permit the organization's rules to address the trade distorting
practices of all Members. The dysfunction of the dispute settlement
system is but one area where reform is urgently needed.
Sincerely,
Terence P. Stewart
[all]