New Articles

WTO Rules that U.S. Section 301 Tariffs on Chinese Imports Violate International Trade Rules

tariffs

WTO Rules that U.S. Section 301 Tariffs on Chinese Imports Violate International Trade Rules

The World Trade Organization (WTO) dispute settlement body ruled that the tariffs imposed by the U.S. on imports from China are inconsistent with the General Agreement on Tariffs and Trade (GATT), and recommended that the U.S. “bring its measures into conformity” with its obligations under the GATT. Beginning in 2018, at the direction of President Trump, the U.S. imposed tariffs on $400 billion worth of imports from China over 4 different lists or tranches. The U.S. and China negotiated a “phase one” trade deal earlier this year, however, most of the tariffs were still left in place.

The WTO panel concluded that the U.S. failed to demonstrate that the tariff measures are justified under Article XX(a) of the GATT 1994.  As a result, the panel found the U.S. tariff measures to be inconsistent with Articles I:1, II:1(a) and II:1(b) of GATT 1994. In other words, the WTO found that the U.S. tariffs on China were discriminatory and excessive, and the U.S. failed to present justification for an exemption that could have legally allowed for the tariffs.

Despite the WTO’s recommendation, its ruling is highly unlikely to sway the course of U.S. trade policy. This is not only because of the limited authority of the WTO, but also because the administration has argued that the tariffs are justified under U.S. law. Section 301 of the Trade Act of 1974 provides the U.S. government with the authority to impose trade sanctions on countries that violate trade agreements or engage in unfair trade practices, of which the U.S. has frequently accused China.

The WTO’s ruling is likely to increase the current U.S. administration’s distrust of the WTO. U.S. Trade Representative Robert Lighthizer criticized the ruling, saying “the United States must be allowed to defend itself against unfair trade practices…” and that “[the WTO’s] decision shows that the WTO provides no remedy for such misconduct” by China.

_____________________________________________________________________

Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

wto

TIME TO REFORM (AND RENEW) THE WTO

Reflect and Appreciate

The window to enjoy the bountiful cherry blossoms in the Washington DC area briefly opens and closes every spring. It would be easy to take them for granted. The show is a fleeting, but a reliable harbinger of spring renewal. Cherry blossom trees have proliferated such that one need not venture to the famous Tidal Basin to enjoy them.

If we find the trade angle in everything, as we are prone to do here at TradeVistas, one could liken the World Trade Organization (WTO) reform process to the Japanese ritual of hanami (flower viewing), where everyone takes pause to appreciate the gift of the sakura cherry blossoms as a community. The current global trading system has generated opportunities for every member to pursue growth and prosperity through increased trade. That’s beautiful and impressive, too. We’ve come to rely on it and rarely stop to appreciate it. As evidenced by the results of our July 2020 poll, the public has very little understanding of the institution’s role.

For the Japanese, the cherry blossoms represent both a recognition of the impermanence of good things, but also renewal and optimism. Viewing parties are organized to lie under the blossoms, stare at the sky, and reflect on whatever calls to mind.

Basho Haiku

Free Trade is Not Inevitable

In his book, The World America Made, scholar Robert Kagan makes the case there is nothing inevitable about either democracy or the prevalence of the global free trade system. World orders are transient. They reflect the beliefs and interests of its strongest powers. History tells us this state is indeed reversible. It can be undone. As Kagan says, “The better idea doesn’t have to win because it’s the better idea. It requires great powers to champion it.”

While the WTO was sown from the seeds of democratic, free-market ideals, WTO members have been unable to cultivate trade deals to counter China’s state-directed economic approach. The WTO’s detractors are free to plant doubts that, left untended, will grow like weeds.

Over the last year, WTO members have initiated serious discussions about how to reform the WTO. But now the organization must choose a new director general, adding a new layer of complexity to the process. Looking ahead at the future of the WTO, perhaps “renew” would be a better term to inspire a renewed appreciation for what global trade agreements have achieved, a renewed communal commitment to its future, and a renewed vision to match that of its founders.

There are at least three areas under discussion by members to renew the purpose and functioning of the WTO.

Fix What’s Wrong

Achieving transparency through timely and meaningful notifications is an important function of WTO committees. Members have an obligation to share information about regulations, policies, and other measures that affect market access for companies seeking to do business in those markets. In the case of subsidies, those measures can affect the volume and prices of commodities trade globally, affecting businesses who may even be selling primarily in their home market. But many WTO members are years behind in reporting and offer incomplete or unverifiable information, which denigrates the integrity of the process and causes other members to query whether WTO violations are being obscured. Some members are so frustrated with this delinquency they are suggesting penalties for failure to meet notification requirements, even creating an “inactive member status” in the most egregious cases.

Another core function of the WTO is to promote the resolution of disputes among members, including through the WTO dispute settlement system. The United States and other members are concerned that the Appellate Body, which can review decisions made by regular dispute settlement panels, has created rights and obligations not agreed by the members through the process of negotiation. The system is now a quarter of a century old. Experience with it offers insights into procedures that can and should be improved as an investment in the system.

Concede that Consensus is Stifling Innovation

WTO members can self-declare as “developed” or “developing” for the purpose of undertaking commitments or availing themselves of exceptions. Despite the underlying validity of acknowledging different levels of capacity or differing economic priorities, this loosey-goosey system has tilted negotiations to focus on what members won’t do, rather than what they commit to do. The United States has called it a self-declared state of paralysis.

Discussions in the WTO are beginning to focus on various data points that can be used to determine who is developed versus developing, but even those exercises might miss the larger point that lowering barriers in a country’s own market will generate economic gains worth pursuing. Take one example: opening one’s market to competition in the provision of telecommunications services creates opportunities to extend broadband access and leverage faster internet connections so that companies can be “born digital” and find their niche in global supply chains. The tendency to opt-out of liberalization commitments can conversely hold countries back in their development pursuits. There’s a philosophical disagreement here that could get glossed over as members dive into data and formulas.

The Doha Round of negotiations collapsed in part due to insistence on a “single undertaking” – that every aspect of a large package deal must be agreed before any single aspect could be agreed and implemented. Members did free an agreement to streamline customs procedures from this consensus capture. On the topic of agriculture, members agreed to move ahead with the elimination of agricultural export subsidies and adopt new disciplines on export credits, international food aid and agricultural exporting state trading enterprises absent a larger deal.

Incrementalism should be welcomed over inaction. Members are now offering papers describing how new negotiations could create agreements among interested members to begin with, with eventual agreement by some or all members. This approach will probably need to apply to the WTO “reform” process itself, with some down payments made and problems fixed without holding up progress.

Negotiate on Issues Relevant to Today’s Economy

In the same vein, willing members should be unencumbered to move ahead with negotiations on “new” issues relevant to today’s economy. For example, the United States, European Union, and Japan announced they would cooperate to develop new rules to address the practices of forced technology transfer and industrial subsidies. A significant subset of WTO members have agreed on the need to facilitate growth of the digital economy in part by ensuring that electronic commerce can flourish. They will begin negotiations and work to bring along other members as talks advance.

What Role Will the U.S. Play?

Questions remain about what role the United States will play in this process of renewal. In spring 2020, the U.S. Congress faced the possibility of a vote – the first since 2005 – on whether the United States should withdraw from the WTO, a body it helped create.

While that vote was eventually scuttled, it amplified growing criticism of the WTO by the Trump Administration – and the general public’s indifference toward the institution. A July 2020 TradeVistas poll found that more Americans either support leaving the WTO or feel “indifferent” or “unsure” about whether to withdraw.

The poll also found that Americans overwhelmingly want the United States to be “leader of the global economy”. They just don’t see membership in the WTO as critical to that goal. But – once they receive some basic information about the WTO’s role, many Americans also see how the organization can benefit U.S. companies.

These results make it clear that trade policymakers should position the WTO’s role more prominently in Americans’ understanding.

The Petals Will Fly Off

The cherry blossoms are impermanent. A strong gust of wind will force them off their branches just at their peak. The leaves fill out, the trees grow, and the blossoms seem to reappear as vibrant as ever the following year. Some trees can survive a century but most cherry blossom species live just 15 to 20 years. New seeds must be planted and the trees cared for. We’ve already lost nearly a generation of progress in the WTO. Now seems as good a time as any for reflection and renewal.

Editor’s Note: This post was originally published in April 2019 and has been updated for accuracy and comprehensiveness. 

______________________________________________________________________

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

the wto

DO AMERICANS WANT THE U.S. TO LEAVE THE WTO?

TradeVistas’ inaugural survey of Americans’ attitudes toward trade shows a plurality support the idea, but most Americans seem unsure of the WTO’s role

Earlier this spring, the U.S. Congress faced the possibility of a vote – the first since 2005 – on whether the United States should withdraw from the World Trade Organization (WTO), a body it helped create.

Leading the effort was Missouri Republican Sen. Josh Hawley, a vocal WTO critic who has called to “abolish” the organization, accusing it of unfairness to U.S. interests and favoritism toward China. Although a procedural issue ultimately scuttled a vote, Hawley’s legislation amplified growing criticism of the WTO, including by the Trump Administration.

But what do ordinary Americans think?

A new poll by TradeVistas, conducted by Lincoln Park Strategies, finds that while a plurality of Americans support leaving the WTO, most Americans either oppose the idea or are unsure what to think. Our poll also finds that while Americans overwhelmingly want the United States to be “the leader of the global economy,” most Americans don’t see membership in the WTO as critical to that goal. These responses imply that most Americans are relatively unaware of the WTO’s role, and that the benefits of U.S. participation are far from obvious to the general public. The results also imply that any momentum for U.S. withdrawal largely reflects the work of a motivated minority, versus a groundswell of public will.

A plurality of Americans support leaving the WTO – but almost as many are “unsure” or “indifferent.”

TradeVistas’ July 2020 survey of 1,000 adults found that 36 percent of Americans support leaving the WTO, including 19 percent who “strongly support” U.S. withdrawal and 17 percent who “somewhat support” the idea. In contrast, 35 percent of Americans say they are “indifferent” or “unsure,” while 28 percent oppose withdrawal, including 18 percent who “strongly” object to the idea.

Q1

Our survey found that 45 percent of men (versus 29 percent of women) approve of leaving the WTO, including 48 percent of white men and 37 percent of men of color. Fully 25 percent of all men “strongly” support the idea, versus only 14 percent of women who feel the same. We also found that 51 percent of men under age 45 support the idea, as do 66 percent of Republican men.

These results, however, reflect broader generational and partisan splits. Overall, 41 percent of Americans under age 45 want the U.S. to leave the WTO as do 57 percent of Republicans. In contrast, the respondents most likely to oppose withdrawal are those over age 65 (42 percent) and Democrats (49 percent). Responses did not differ significantly by education level or by income.

When voters understand the role of the WTO, they are more likely to be supportive of it.

Despite Americans’ seeming indifference or, in some cases, hostility toward U.S. participation in the WTO, many Americans also see how the organization can benefit U.S. companies – once they receive some basic information about the WTO’s role.

After being told that “the job of the WTO is to enforce a set of rules for international trade that the members negotiated, and 164 countries agreed to follow,” 49 percent of survey respondents said it was “definitely true” or “probably true” that “WTO rules help U.S. companies compete on fair terms,” while 48 percent agreed it was definitely or probably true that “WTO rules stop foreign governments from applying unfair requirements to U.S. companies.”

Those most likely to say these statements are true were also those most opposed to the United States’ leaving the WTO. In fact, a whopping 74 percent of those who “strongly” oppose withdrawal say that WTO rules help U.S. compete, while 67 percent say the WTO stops foreign governments from discriminating against U.S. companies.

Interestingly, however, a majority of the respondents who support WTO withdrawal also believe these statements to be true. For instance, 53 percent of those who “strongly” support leaving say the WTO helps companies compete, while 55 percent say the WTO blocks unfair trade rules. This response suggests that for some Americans, opposition to WTO participation could be a “gut-level” response potentially open to tempering.

Q2

Americans want the U.S. to lead the global economy – but don’t see how the WTO can help.

By overwhelming margins – regardless of gender, age, party or race – Americans want to see their country “be the leader of the global economy.” Fully 79 percent of those surveyed rated this goal to be important, including 39 percent who called it “very important.”

Most Americans, however, don’t see WTO membership as instrumental to America’s economic success. When asked if WTO withdrawal “would help or hurt the United States standing as a global leader,” 33 percent of Americans said it would “definitely help” or “probably help,” while 18 percent said “it wouldn’t make a difference” and 13 percent were unsure. Just 36 percent said it would “definitely hurt” or “probably hurt” the United States’ global economic standing to leave the WTO.

Q3

Not surprisingly, those most likely to say that withdrawal would help the U.S. are among the minority who also strongly support leaving the organization. Of those who “strongly” support withdrawal, 58 percent also say this would “definitely help.” In contrast, among those who strongly oppose withdrawal, 70 percent say it would “definitely hurt.” It’s worth remembering, however, that both of these groups are relatively small subsets, substantially outnumbered by those who are indifferent, unsure, or have malleable views.

Q4

Conclusions

The TradeVistas poll findings suggest that the majority of Americans have formed no real opinion on the WTO and that strong support for withdrawal is limited to a minority of – albeit potentially vocal – voters. Even among these Americans, however, it’s possible that their support for withdrawal is based less on deep knowledge of the WTO than on partisan leanings or a general distrust toward institutions. Importantly, more than 40 percent of adults under the age of 45 support withdrawal from the WTO, with an equal amount simply indifferent or unsure.

Without question, our survey is limited in its scope and offers only the briefest of snapshots on American attitudes toward a global institution of long standing and enormous impact. What is clear, however, is that the vacuum of general public knowledge on the WTO could easily be filled by its detractors, if the organization’s defenders allow it.

Methodology: 1000 interviews among adults age 18+ were conducted from July 10-13, 2020 by Lincoln Park Strategies using an online survey. The results were weighted to ensure proportional responses. The Bayesian confidence interval for 1,000 interviews is 3.5, which is roughly equivalent to a margin of error of ±3.1 at the 95% confidence level.

Download the infographic:

TradeVistas | July 2020 WTO Poll America Trade Survey Infographic

Lincoln Park Strategies National Voter Poll Results

_________________________________________________________________

Anne Kim is a contributing editor to Washington Monthly and the author of Abandoned: America’s Lost Youth and the Crisis of Disconnection, forthcoming in 2020 from the New Press. Her writings on economic opportunity, social policy, and higher education have appeared in numerous national outlets, including the Washington Monthly, the Washington Post, Governing and Atlantic.com, among others. She is a veteran of the think tanks the Progressive Policy Institute and Third Way as well as of Capitol Hill, where she worked for Rep. Jim Cooper (D-TN). Anne has a law degree from Duke University and a bachelor’s in journalism from the University of Missouri-Columbia.

This article originally appeared on TradeVistas.org. Republished with permission.

wto

AMERICAN DOUBTS ABOUT THE WTO ARE GROWING LIKE WEEDS

Polls show that Americans are concerned about the rise of China and what it means for the U.S. economy and global standing.

U.S. leadership in the WTO could serve as a valuable counterbalance to China’s growing influence. But first, Americans need to know why they should care about the WTO.

The jungle is growing back

In The Jungle Grows Back, foreign policy scholar Robert Kagan cautions that the past seven-plus decades of relative free trade and expanding individual freedoms were not inevitable and may be “a great historical aberration” – the jungle grows back.

The World Trade Organization (WTO) was sown from the seeds of democratic, free-market ideals. But China’s state-directed economic approach has growing influence and WTO members have been unable to cultivate modern trade deals to counter it.

Meanwhile, new TradeVistas polling shows Americans are mostly unaware the WTO – which represents the U.S.‘ own free-market principles – has reached this pivotal moment. The WTO’s detractors are free to plant doubts that, left untended, will grow like weeds.

Two-thirds of Americans are ready or open to the idea of leaving the WTO

Presented in detail in our companion article, Do Americans Want the U.S. to Leave the WTO?a TradeVistas poll conducted earlier this month finds that most Americans either support leaving the WTO or feel “indifferent” or “unsure” about whether to withdraw from the organization.

It’s not that Americans are necessarily focused inward, though COVID-19 has stimulated concerns about the extent of America’s reliance on global value chains. Rather, TradeVistas’ poll finds that Americans overwhelmingly want the United States to be “leader of the global economy”. They just don’t see membership in the WTO as critical to that goal.

leave WTO

What should we learn from these results?

While it might be tempting for trade policymakers to concentrate on converting the vocal minority that supports U.S. withdrawal, two undercurrents in the poll results merit close attention.

First, the subset of strong WTO opponents is substantially outnumbered by those whose views are less strongly held, and the consequences of such indifference should not be ignored. The old adage, “you don’t know what you’ve got until it’s gone,” doesn’t necessarily apply to trade institutions. Recall that when President Trump withdrew from the Transpacific Partnership Agreement on day three of his presidency, polls at the time demonstrated that 72 percent had either not heard about the TPP or “not much”. Are they remorseful now? Generally, no, despite the concerns from industry and the trade policy community. As for President Trump, the political gains from withdrawal were minimal, but neither was there a backlash.

Second, asked whether WTO rules help U.S. companies compete on fair terms or help prevent foreign governments from applying unfair requirements to U.S. companies, a clear majority – even those who strongly supported leaving the WTO — felt it was likely true that the WTO accomplishes those goals. With deeper knowledge and greater understanding of what the global trading rules offer American creators, producers and service providers, Americans may be more inclined to support the WTO, or at least support the WTO’s set of agreements, which they perceive to benefit the overall economy.

Restatement of WTO Q on Rules and Unfair Requirements

Engaging Americans on what’s at stake

Unsurprisingly, a survey by the Pew Research Center this spring found that nearly two-thirds of Americans now have a negative opinion of China. And 9 in 10 Americans see Chinese power and influence as a threat to the United States. Where there’s much less agreement, however, is how the United States should manage its relationship with China, including on trade. All too often overlooked in these discussions is the WTO – an institution whose purpose is to set the rules for global trade and through which the United States could exert its influence to restrain the commercial and economic practices it finds damaging.

In our absence, China is seizing that opportunity. If the United States spent decades building an international system in the likeness of its free-market democracy, China is actively working to remake that system in its own image. China now heads the International Civil Aviation Organization, the International Telecommunications Union, the Food and Agriculture Organization and the United Nations Industrial Development Organization. China recently ran a candidate to lead the World Intellectual Property Organization but the United States led a coalition to oppose it.

And what of the WTO’s majority of developing country members? What is the significance of Afghanistan and Liberia choosing to join the WTO, of Belarus, Iraq, and Timor-Leste in the queue? These are conflict-affected nations that seek to rebuild their post-conflict economies. They see WTO membership as a step toward necessary but difficult economic reforms at home – reforms they hope will reap economic gains that will bring more lasting security and stability. As was originally envisioned, American leadership in the WTO enables the United States to gain from trade while supporting democratic transitions and the expansion of prosperity around the world.

China is making significant infrastructure and financial investments around the world, drawing fragile democracies into their ambit. Americans would understand if the WTO were positioned as a way to counter China’s growing economic influence in the developing world.

How trade policymakers can position the WTO as more relevant to ordinary Americans

The global trade policy community mostly agrees the WTO is in need of reforms to restore its core functions of negotiating trade-liberalizing deals and ensuring effective implementation and enforcement of those trade deals.

Let’s be honest, however. Though vital for the health of the WTO, the average American is not interested in the minutia of tweaks to the WTO’s dispute settlement system, in the vernacular “special and differential treatment” for developing countries, or the definition of a market economy. When the trade community is too focused on those details, it risks losing sight of the broader need to attract American public support for the institution itself.

To position the WTO’s role more prominently in Americans’ understanding, trade policymakers should appeal to citizens in the following ways:

To Americans’ sense of fairness:

The average American is interested in basic fairness and in ensuring that major economies play by the same rules. Before the WTO, countries that signed onto its predecessor, the General Agreement on Tariffs and Trade, were called Contracting Parties. The GATT was a contract. Americans like contracts; we are good at writing contracts. We enter them voluntarily when the terms are favorable and mutually agreeable.

The United States negotiated favorable terms under the GATT and then the WTO. If those terms no longer serve the United States well, it can negotiate different or additional terms. But the United States can only do that if it remains a member.

To Americans’ need for control over their own destiny:

The average American feels conflicted about international organizations because they fear a loss of sovereignty. However, WTO rules do not prevent national policies to promote domestic jobs and growth. Rather, the disciplines of the global trading system compel governments to adhere to the norms of transparency and non-discrimination as those policies are developed and implemented.

If the American public perceives the U.S. government has made poor policy choices, that’s on our policymakers, not the WTO. And if we fail to treat companies from other nations in a non-discriminatory manner, we can be sued in the WTO just as we can sue other governments. But: only our elected representatives in Congress can change our laws. It would be helpful for more Americans to understand this.

To Americans’ desire to be left alone:

TradeVistas’ polling affirms that Americans feel contradictory impulses when it comes to their world view. This is nothing new. Americans have shown tremendous generosity when it comes to protecting other nations, but that does not mean most Americans think it is (or should be) our role. Many Americans believe others in the world deserve fundamental economic freedoms, but often feel we should mind our own business. Americans built many of the international institutions that exist, but today exert relatively little influence over them and often feel threatened by them. We’d prefer to be left alone.

Counterintuitively, the global trading rules and the WTO itself mesh well with this approach. As an extension of the American ideals of free-market democracy, the global trading rules are designed to protect individual economic freedoms, not to constrain them. Though governments are its members, the rules are designed to keep government as much out of the way of individuals and companies as possible – to let them thrive under regulations that are no more trade restrictive than necessary. The rules are accepted because most other nations in the world are also aligned with a free-market orientation.

The global trade rules are a scaffolding around a building that rests on the foundations of free-market democratic ideals. Leadership by America and its allies are what holds that building up – not the rules themselves. We are free to hold contradictory views but we have much to risk by acting in contradictory ways. In other words, it’s not enough to support the rules, we have to fight for them. Otherwise, the jungle grows back.

Q on US leader of global economy

To Americans’ concerns about China:

The United States and like-minded nations are the individual bricks in the edifice of free-market democracy. Beyond our own internal disagreements, Americans generally agree that China stands for something else.

Here again, author Robert Kagan cautions:

“History shows that world orders, including our own, are transient. They rise and fall. And the institutions they erected, the beliefs that guided them, and the “norms” that shaped the relations among nations within them—they fall, too. Every international order in history has reflected the beliefs and interests of its strongest powers, and every international order has changed when power shifted to others with different beliefs and interests.”

There is certainly room for criticism that China has “gamed the WTO system,” or that the current global trade rules are insufficient to prevent China from gaining an unfair advantage in global markets where American companies compete. Americans could be convinced that other WTO members share this concern and are willing to follow an American lead to preserve the benefits of the global trading system. More compelling perhaps, is to show them that U.S. withdrawal from the WTO serves China’s interests more than it does ours.

Tend to weeds now before the jungle grows back

Right now, the WTO appears a garden that has not been properly tended. Weeds are growing where they are not wanted.

My former colleague and WTO negotiator Mark Linscott recently wrote, “The drift and malaise in the WTO has been a collective failure [by its members] over a number of years,” attributable to “a lack of leadership, a frequent resort to entrenched bad habits, particularly in pitting the developing world against the developed one, engaging in action-numbing group think, and [failure] to find creative ways to achieve breakthroughs.”

If we continue this way, it will soon become hard to discern the roots of our intentional plantings from those of the weeds as they became intertwined. After all, there is no “weed” in nature – weeds are the state of nature.

What Mark describes is the default that WTO members must fight against. And if the WTO is to endure, we must also compel the American public to fight against its own default – a lack of awareness and indifference.

______________________________________________________________________

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

big tech

NEW PAPER “EXPOSES” BIG TECH’S PLANS FOR NEW WTO RULES OVER DATA ACCESS AND CONTROL

A paper released in July by educational publisher Rosa-Luxemburg-Stiftung of Brussels examines how “big tech” corporations work to use “trade” rules to allegedly rig the global digital economy to collect more data, exercise more control over people’s lives and over their workers, and amass ever more profit.

“Digital Trade Rules: A Disastrous New Constitution for the Global Economy, By and for Big Tech” was written by Deborah James of the Center for Economic and Policy Research. She claims companies such as Amazon, Facebook, Google, Apple, and Microsoft work to secure new accords at the World Trade Organization (WTO) that would allow them greater access to, and ownership of, data with minimal restrictions.

“These proposed rules are a grave threat to development, human rights, labor, and shared prosperity around the world,” says James, who is executive director of the Washington, D.C.-based center’s International Programs. “They are the very antithesis of the type of policies we need to rein in the cancerous and untrammeled growth of the power of Big Tech.”

She writes that, “When it was founded in 1995, new agreements within the WTO gave rights to the dominant industries at that time, such as agriculture, finance, services, pharmaceuticals, and manufacturing. The technology industries lack such an agreement in the WTO and are seeking similar rules to these to liberalize the digitalization that is currently transforming the global economy, particularly the governance of today’s most valuable resource, which is data.”

Her report came as a group of 76 countries launched talks aimed at a digital trade agreement at the next WTO ministerial conference. Due to the COVID-19 pandemic, a WTO conference planned for June is Kazakhstan was postponed.

streaming

TRADE BARRIERS EVOLVE WITH MOVIE STREAMING TRENDS

We’re All Streaming Now

During our collective stay-at-home period, movie streaming has grown to the point where industry analysts are wondering whether many people will return to movie theaters. Netflix reported 15.8 million new subscribers for the first quarter of the year, more than double their forecast, according to the Wall Street Journal. Some studios are eschewing the traditional theatrical release and going straight to digital. As some indicator of how the trend is taking off, the Motion Picture Academy has said that — just for this year — movies released via streaming would be eligible for the upcoming Oscars.

Streaming movies online has been growing in popularity in recent years, but the coronavirus has accelerated the trend. Unfortunately, where consumer and commercial trends go, trade policy barriers may follow.

The Hollywood Juggernaut

Movies both reflect and shape our national cultures. Hollywood has traditionally dominated among international viewership (a phenomenon that has been shifting over recent years), sometimes to the consternation of “keepers of culture” in other countries. As far back as the 1920s, European countries offered subsidies to domestic film producers and imposed so-called screen quotas to establish a minimum number of screening days for domestic films. The OECD keeps track of restrictions on services trade in OECD member countries, including audiovisual services, the category under which movies fall. According to the OECD, eleven countries still today reserve a quota for local motion pictures shown in theaters or on television.

Other measures to shore up local culture against the tidal wave of cultural influence that is Hollywood include import quotas, tax breaks to domestic film industries, foreign investment restrictions, requirements for local sourcing of cast and crews, and blackout periods during which no new imported films may be released, often during prime movie-going periods or timed to political events.

Film Distribution in Hollywood

Ready, Action…Trade

Such measures discriminate against the film industries of other countries and constitute barriers to trade. Policymakers have sought to address screen quotas in trade agreements such as the WTO’s General Agreement on Tariffs and Trade (GATT) and the original North American Free Trade Agreement (where Mexico agreed to reduce its screen quotas). Provisions to remove barriers to audiovisual services have also been included in many recent bilateral free trade agreements.

In the case of Korea, whose vibrant film industry reached a pinnacle of global recognition with the Academy’s choice of Parasite as Best Picture in 2020, formal restrictions targeting foreign films date back to Korea’s Motion Picture Law of the 1960s. The Korean government abolished its import quota in the late 1980s, and only after the Motion Picture Export Association of America (MPEA) in 1985 filed a complaint (later withdrawn) with the U.S. Trade Representative under section 301, the same tool being used today to try to address China’s technology transfer requirements. In 2006, just prior to the Korea-U.S. (KORUS) free trade agreement negotiations, Korea agreed to reduce by half its screen quota from a minimum of 146 days to the current 73 days per year.

Digital Era Trade Restrictions

While cultural protections for film have traditionally focused on theatrical screenings, screen quotas don’t work in the digital era, where on-demand audiovisual services such as Netflix and Amazon Prime are increasingly capturing viewership. As a result, new forms of trade barriers are popping up.

For example, China has imposed tighter regulatory controls in recent years, limiting foreign content purchased for streaming in the Chinese market, which has over 850 million digital consumers. U.S. streamers must license their content for China under a 30 percent streaming quota. Chinese content, however, can reach global audiences through video streaming platforms with no such numerical limits. In today’s tense political environment – and with China marking the 100th anniversary of the establishment of the Communist Party in 2021 – we could anticipate increased censorship, which would exacerbate the problem of foreign content scarcity while simultaneously elevating the risk of piracy and other illegal distribution of unauthorized content.

In line with a longstanding European Union (EU) focus on protecting the European film industry, the EU passed a law in late 2018 that requires Netflix, Amazon and other online streaming services to dedicate at least 30 percent of their output to films made in Europe, which they must subsidize by either directly commissioning content or contributing to national film funds. Regulation now applies similar rules to similar services, whether online or offline.

U.S. and European trade discussions are now focused on a limited set of issue areas, but in an earlier push for a Transatlantic Trade & Investment Partnership (TTIP) in 2013, the camera zoomed in on issues of culture in trade negotiations. At the time, the European Commission was given a negotiation mandate that expressly excluded opening the European audiovisual sector to competition from U.S. firms.

China has 850 million digital consumers

Competition Makes Most Things Better – Even Movies

Culture clashes aside, there is a strong case that greater competition has been the force behind successful film industries outside of Hollywood. Researchers Jimmyn Parc and Patrick Messelin posit that the success of contemporary Korean cinema is due to “less interventionist public policies over the last two decades,” together with “benchmarking, learning, and innovating among non-subsidized private companies.” They point to data from the decade preceding the industry’s opening in the late 1980s, when the Korean film industry released around 90 films per year with an average revenue of KRW ₩0.9 billion per film (roughly USD $0.7 million at the current exchange rate). From 1989-2005, around 75 films were released per year with an average revenue of KRW ₩2.7 billion per film (roughly USD $2.2 million at the current exchange rate), a signal of the improvement in film quality.

Brian Yecies of the University of Wollongong Australia agrees that Korea’s efforts to liberalize in the 1980s and address censorship enhanced competition. As Hollywood expanded into Asia-Pacific markets, Korean cinema became stronger. The increased distribution and exhibition of U.S. films, Yecies argues, gave birth to a new generation of moviegoers who also increased their consumption of Korean content. Park Moo Jong credits three elements with reviving the Korean film industry: talented young filmmakers, the virtual abolition of government censorship, and remarkable technological developments. In short, he says, “Good films attract fans.”

EU streaming requirements

The Streamed Show Must Go On

In a 2019 submission to the U.S. Trade Representative, the Motion Picture Association pointed out that the industry’s international sales “now depend increasingly on member companies’ ability to capitalize on major distribution windows in the digital market.”

The need to remove barriers to stream internationally and enable competition holds true for online streaming as it has for many years for screening in theaters. As streaming gains momentum, trade agreements will continue to tackle the array of barriers the U.S. film industry faces abroad, from intellectual property challenges to subsidies to foreign investment restrictions. Likewise, negotiators will work to advance market access for creative content as it flows through both traditional and new distribution platforms. After Parasite’s surprise Best Picture Oscar win, who knows if 2021 may bring our first direct-to-digital winner? Put your feet up and get the popcorn ready.

_________________________________________________________

Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.

This article originally appeared on TradeVistas.org. Republished with permission.
trade protectionism

Trade Protectionism Won’t Help Fight COVID-19

Countries around the world are limiting international trade and turning inward, seeking to produce nearly everything — especially medical supplies — themselves.

The Trump administration, for instance, is considering a “Buy American” executive order that would require federal agencies to purchase domestically made masks, ventilators, and medicines. And over two dozen countries — including France, Germany, South Korea, and Taiwan — have banned domestic companies from exporting medical supplies.

The scramble for self-sufficiency in medical supplies and medicines needed to fight the coronavirus is make-believe. It is neither feasible nor desirable, and will only deepen the pain felt amidst this pandemic.

Governments around the world have responded to COVID-19 by imposing export restrictions on things like ventilators and masks. In mid-April, Syria became the 76th country to follow suit. The import side of things isn’t much better. The World Trade Organization (WTO) reports that tariffs remain stubbornly high on protective medical gear, averaging 11.5 percent across the 164 members of the Geneva-based institution, and peaking at just under 30 percent.

This is no way to fight a pandemic.

It’s not that COVID-19 caused this bout of trade protectionism. It’s just that COVID-19 offers up a useful narrative to promote trade protectionism.

The Trump administration, for instance, has been touting its “Buy American” executive order as a move to spur local manufacturing. Canada has also considered going it alone in ventilators and masks, but recently acknowledged it can’t possibly achieve self-sufficiency in medicines. No one can.

The way many governments see it, the only thing standing in the way of greater self-reliance in medical equipment and medicines is the will to pay for it. The story is that ventilators might be more expensive if made domestically, but that’s the cost of going it alone. It’s only a matter of getting Bauer and Brooks Brothers, for example, to make personal protective equipment, rather than hockey gear and clothing.

But there’s a reason Bauer makes skates instead of surgical masks. It’s better at it, and skates are a much more lucrative business. Bauer didn’t misread the market. It’s heartwarming to hear that Bauer is stepping in to help out, but the company knows that making surgical masks in the US is five times more expensive than making them in China. That’s why 95 percent of the surgical masks in the US are imported.

The absurdity of self-sufficiency in medicines is even more glaring. The US is a major exporter of medicines, but the raw chemicals used to make them are imported. Nearly three-quarters of the facilities that manufacture America’s “active pharmaceutical ingredients” are overseas. To reorient supply chains to produce these ingredients domestically would take up to 10 years and cost $2 billion for each new facility.  Consumers would pay at least 30 percent more at the pharmacy.

The last plug for self-sufficiency in medical equipment and medicines is that it’s not a good idea to depend on adversaries to keep us healthy. We don’t. What’s striking about medicines, medical equipment, and personal protective products is that market share is highly concentrated among allies. For example, Germany, the US, and Switzerland supply 35 percent of medical products sold worldwide. True, China leads the top ten list of personal protective products, at 17 percent market share, but the other nine, including the US at number three, are all longstanding allies. To be sure, the untold story of China is that it depends on Germany and the United States for nearly 40 percent of its medical products.

This past week, the WTO and the International Monetary Fund (IMF) called for an end to the folly of trade restrictions during this pandemic. The communique should have — but obviously couldn’t — call out governments around the world for maintaining, on average, a 17 percent tariff on soap. That tariffs on face masks average nearly 10 percent is baffling. That 20 countries in the WTO have no legal ceiling on the tariffs they impose on medicines is unforgivable.

Self-sufficiency in medical supplies and medicines is a political sop. It’s a narrative that can’t deliver anything but misery. If governments want to fight COVID-19, they should spend more time looking at how they’re denying themselves access to medical necessities, and less time on how to deny others the tools to save lives.

______________________________________________________________________

Marc L. Busch is the Karl F. Landegger professor of international business diplomacy at the Edmund A. Walsh School of Foreign Service at Georgetown University and a nonresident senior fellow in the Atlantic Council.

irish

FIDDLING WITH IRISH MUSIC ROYALTIES IN THE WTO

The wee organization that took on the U.S. copyright system

Black Velvet BandMolly Malone, ,The Fields of AthenryWild Mountain Thyme and Danny Boy are among Ireland’s most famous exports. Irish bouzoukis, Uilleann pipes and Celtic harps render traditional Irish music as unmistakable as it is beloved – a cultural connection for millions of Americans to their roots.

Over ten percent of the population, or 32.6 million Americans, claimed Irish ancestry in a 2017 U.S. Census Bureau survey. That affinity (along with Irish beers and whiskeys) explains the popularity of Irish pubs throughout the United States.

The Irish music playlist broadcast in thousands of pubs and restaurants is why a small outfit called the Irish Music Rights Organization (IMRO) twenty years ago convinced the European Commission to sue the United States in the World Trade Organization (WTO). At issue is an exception in U.S. copyright law that enables U.S. businesses to play music without paying royalties to the creators. The United States lost the WTO case known as “Irish Music,” but has yet to restore rights to Irish performers.

American Irish

Pay to Play

Generally speaking, when copyrighted music is played in a small boutique, while getting a filling at the dentist, or to motivate your workout at the gym, the creators of the music are owed a royalty. It would be cumbersome for many such businesses to pay that directly, so performance rights organizations (PROs) collect licensing fees that they pass on to registered singers, songwriters and music publishers. In the United States, the two largest PROs are The American Society of Composers, Authors and Publishers and Broadcast Music, Inc.

Section 110(5) of the 1976 U.S. Copyright Act included a “homestyle exemption” to this rule that allowed small commercial establishments to avoid the royalty payment. A business could qualify for the exemption if it broadcasts through a single radio or audiovisual device that is of the type commonly used in one’s home. The Senate report accompanying the Act characterized such use as “for the incidental entertainment of patrons in small businesses and other establishments, such as taverns, lunch counters, hairdressers, dry cleaners, doctors’ offices, etc.” The provision became known as the Aiken exemption after the Supreme Court victory of George Aiken who played his radio for customers in his fast-food chicken restaurant.

Over the years, application of the law was repeatedly litigated due to its ambiguity. Rather than clarifying a narrow interpretation, Congress expanded the exemption through the 1998 Fairness in Music Licensing Act to allow all establishments under a certain square footage to play licensed music for their customers regardless of the type of sound system employed. Going a step further, Congress created the “business exemption” which allows businesses of any size to play licensed music if the number and location of loudspeakers is limited, if the establishment does not charge to see or hear the music transmitted, and if the broadcast is not transmitted beyond that establishment.

Broadcasting from both sides of our mouths

Article 9 of the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) requires WTO members to comply with Articles 1 through 21 of the Berne Convention for the Protection of Literary and Artistic Works that guarantee the rights of copyright owners. Any limitations or exceptions should be confined to certain special cases and should not “unreasonably prejudice the legitimate interests of the right holder.”

In 2000, a WTO dispute settlement panel agreed with the European Communities’ contention that section 110(5) of the U.S. Copyright Act violates the United States’ TRIPS obligations. The “homestyle exemption” as provided in section 110(5)(A) was deemed sufficiently narrow as to not prejudice the rights of copyright owners. Some 13 to 18 percent of U.S. business establishments would be covered. The “business exemption” in section 110(5)(B) however, expanded covered establishments to more than 70 percent of bars and restaurants (and 45 percent of retail), causing unreasonable prejudice to the legitimate interests of copyrights holders.

In other words, if the majority of food and drink establishments could avoid paying royalties to copyright holders of Irish music, the exception had become the rule.

70 percent exempted

An Irish goodbye

The United States accepted the panel findings and agreed to binding arbitration to determine a deadline for compliance and to determine the damages (known in WTO parlance as the level of “nullified or impaired benefits”) to the European Communities, which was set at 1,219,900 euros or about $1.1 million annually. Europe extended a December 31, 2001 deadline to provide time for the U.S. administration to work with Congress on an amendment to the copyright law.

The White House could not secure Congress’ approval so Europe agreed to negotiate a settlement. In June 2003, the United States and European Communities notified the WTO Dispute Settlement Body that the parties had reached a “mutually satisfactory temporary arrangement.”

The United States would make a one-time, lump-sum payment of $3.3 million covering a three-year period paid into a fund set up by European performing rights societies “for the provision of general assistance to their members and the promotion of authors’ rights.” The parties further agreed that, if the dispute has not been resolved three years on, they would enter into consultations to reach a durable resolution, foreshadowing what would become a never-ending exchange of letters.

In a November 2004 document labeled WT/DS160/24, the United States pledged to “work closely with the U.S. Congress and will continue to confer with the European Union in order to reach a mutually satisfactory resolution of this matter.” Every time Europe raises the outstanding item in WTO meetings, it is met with the exact same addendum to WT/DS160/24, restating the U.S. administration’s commitment (whether it be President George W. Bush, Barack Obama or Donald Trump) to work with Congress. As of February 2020, the United States had issued 179 such addendums.

US noncompliance

Unlucky

The WTO’s dispute settlement mechanism was designed to encourage members to resolve disputes through consultation. Consultations can sometimes avert use of formal dispute settlement procedures or avoid the imposition of retaliatory measures once a dispute settlement panel renders a decision.

The intent of consultations is to bring WTO-inconsistent measures into conformance with a member’s obligations. In the “Irish Music” case, the United States provided compensation rather than fix the offending measure (and Europe agreed as a temporary solution). But the WTO’s Dispute Settlement Understanding itself states that compensation should be resorted to “only if the immediate withdrawal of the measure is impracticable and as a temporary measure pending the withdrawal of the measure which is inconsistent with a covered agreement.”

In this case, the United States stretched “temporary” into twenty years of non-compliance, to the detriment of the rights of European music creators and the rights of other WTO members. The outcome also undercuts the very intellectual property rights the United States fought to include in TRIPS on behalf of American copyright holders.

Modern musical arrangements

In the meanwhile, sound systems and methods of “transmission” have evolved rapidly. Streaming delivers 75 percent of the music industry’s global revenues today. At this point, it seems pretty unlikely that your local Irish pub is using a radio on a shelf to play music.

The Recording Industry Association of American (RIAA) says charges for licensing account for 16 percent of total U.S. services exports. RIAA is working to ensure global copyright protections for sound recordings as digital products. Copyright enforcement in the digital realm requires measures to control access to content such as encryption and password protections, clarification of responsibilities by Internet service providers that may play host to copyright-infringing websites, and enforcement actions against so-called “stream-ripping” sites that allow free downloads of copyright-protected recordings. This may require new provisions in trade agreements, even as the United States remains out of compliance with some of its old commitments regarding “Irish Music” copyright protections.

We’re all Irish on St. Paddy’s Day

In its 1995 appeal to the EC to bring the Irish Music case, the Irish Music Rights Organization argued that the Chieftains, The Pogues, and other European creators lose as much as 28 million euros each year, not to mention hundreds of millions for American creators whose royalties also go unpaid.

Instead, it’s American bar crawlers who unknowingly benefit. Now that you know, this St. Paddy’s Day, you may as well hoist a Guinness to toast the U.S. copyright law exception that enables you to belt out a rendition of Molly Malone as it plays on the sound system – for free – at your local Irish pub.

_____________________________________________________________

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

world trade

Simon Paris, Chair of the World Trade Board & CEO of Finastra, Provides a Snapshot of this year’s World Trade Symposium

Protecting world trade from the current vicious cycle of trade tensions makes it imperative that those in a position to effect change – public and private sectors – work together; quickly and cohesively. Chairman of the World Trade Board and CEO of Finastra, Simon Paris, discusses three ways in which committed organizations can bring about a new pro-trade paradigm, even against the backdrop of today’s protectionist narrative, to lift people out of poverty globally and enable long-term growth and prosperity for all.

Across the globe, protectionist rhetoric and policy initiatives have become increasingly normalized. Tensions and tariffs continue to escalate with the World Trade Organization estimating that $339.5bn1 in trade is now at risk from import restrictions – the second highest level ever recorded. Amidst this trend, we as business leaders, policy makers, and engaged thinkers must deepen our commitment to free and open trade benefiting communities and workers.

The path to open trade and ensuing economic growth is under shadow. The global economic uncertainty2 risk index hit an all-time high this year. Ongoing friction between the United States and China has not only caused a tangible 12% drop in US imports from China, but triggered aftershocks across other Asian economies as a result of closely integrated supply chains3. Japan and Korea have made headlines with their own trade war that risks their trade relationship worth about $85 billion a year4 and the future economic relationship between the United Kingdom and the European Union amidst Brexit is uncertain.

In response free traders should commit to three acts of solidarity, with the aim of reversing – or as an absolute minimum, reducing – the pervasive change that continues to threaten trade as we know it.

Three commitments that will drive change

Firstly, we must be persistent in our reinforcement of the pro-trade narrative; uniting to protect and promote open trade as the unequivocal foundation for global prosperity and economic inclusion. Secondly, we must continue to investigate ways in which we can reduce the SME funding gap, currently estimated at $1.5 trillion5, which is precluding both innovation and financial independence on a global scale. It is imperative that we seek out new ways to free up finance or neutralize the perceived risk of lending to small firms. At a time where the least developed countries represent less than 1% of world exports6, we must find solutions that unlock the latent value within SMEs to stimulate competition, innovation and economic growth, and reduce the disparity of wealth in a sustainable way.

Finally, we must examine how open technology can act as the enabler for inclusive, sustainable trade. As global supply chains become increasingly complex, our goal should not be measured on a binary figure of turnover or profit, but on the ethical and sustainable impact of our technological innovation; our technological social responsibility (TSR). How can we use technology, collectively, to ascertain the provenance of materials, improve the health and wellbeing of workers in remote locations, reduce the cause and effects on environment pollution of long-distance transportation or minimize the impact of waste and disposal? How can we use open finance technologies – and by this, I include open systems, open software, open APIs, open standards and open partner networks – to transform supply chains and encourage the formulation of more relevant and inclusive trade models, in support of ethical trade?

Protecting against threats, known and unknown

A global marketplace helps ensure a sustainable model of financial inclusion that protects future generations against wealth disparity and isolation. I believe that it is only through a powerful combination of forward-thinking policies, collaborative mindsets and funding, underpinned by open finance technology, that we can deliver the change so desperately required, that promotes equality and opportunity, and reverses the trend of poverty and protectionism. It is time to find solutions to today’s threats to open trade and together protect against further polarization and the unseen threats of tomorrow.

Simon Paris will be opening the third World Trade Symposium, held in the Grand Hyatt, New York on 6-7 November. The event brings together policy-makers, trade finance luminaries and thought leaders to openly collaborate and effect change. Register Today!


1. https://www.wto.org/english/news_e/news19_e/trdev_22jul19_e.htm

2. http://policyuncertainty.com/

3. https://www.oecd.org/newsroom/international-trade-statistics-trends-in-first-quarter-2019.htm

4. https://www.nytimes.com/2019/08/28/business/japan-south-korea-trade.html

5. https://www.wto.org/english/news_e/spra_e/spra241_e.htm

6. https://www.wto.org/english/res_e/statis_e/wts2019_e/wts2019_e.pdf

__________________________________________________________________________

Simon takes responsibility for Finastra’s strategic direction and growth. His leadership steers the company as it realizes its open platform vision, encouraging industry-wide collaboration to spark innovation and transform the next generation of financial services.

A firm believer in the principles of doing well by doing good, Simon chairs the World Trade Board and is passionate about how technology and open trade can drive financial inclusion and improve people’s lives.

An inspiring and trusted Fintech thought leader, Simon speaks regularly at large-scale events including the annual World Trade Symposium, Paris FinTech Forum and The Milken Asia Summit. He is a strong advocate for diversity and inclusion, with refreshing and candid views on equality in the workplace. He was also named in Bank Innovation’s ‘Innovators to Watch’ list for 2018.

Simon joined Finastra (formerly Misys) as President in 2015, was appointed Deputy Chief Executive Officer in 2017 and became Chief Executive Officer in June 2018. He brings more than 20 years of sales, management and global leadership expertise to the company, having previously held the role of President, Industry Cloud, at SAP. Prior to that he was a senior consultant with McKinsey & Company.

He holds a degree in Business Administration (MBA) from the INSEAD Business School in France and a Bachelor’s degree in Business & European languages from the European Business School.

APEC: TRADE ACCELERATOR IN THE ASIA-PACIFIC & BEYOND

Menu of Options to Grow Trade

Countries utilize multiple platforms to open markets, set standards or other rules of trade, and resolve disputes. Progress in reducing barriers to trade and facilitating the flows of goods and services may be an outcome of negotiated free trade agreements between two or more countries or result from legally binding instruments agreed to in multilateral fora like the World Trade Organization (WTO).

In contrast, decisions in the Asia-Pacific Economic Cooperation (APEC) forum, a grouping of 21 economies that border the Pacific Ocean, are reached by consensus but undertaken on a voluntary basis. This format is credited with enabling members to “incubate” content for new trade negotiations and to work collaboratively on pragmatic regulatory and policy approaches to common challenges.

The APEC forum culminates each fall in a meeting of the 21 leaders, a gathering many associate with the annual “silly shirts” photo of top officials genially wearing the national garb of the host economy, rather than their typical business suit. However, the work of APEC goes on for many months before this fashion summitry takes center stage to solidify each member’s commitments.

This article introduces this cooperative, regional forum; highlights the priority focus areas set out by this year’s APEC host, Chile; and shines a spotlight on one such area – digital trade – as a case study into how APEC serves as a building block in the iterative process of co-creating norms for trade.

Spotlight on APEC

The 21 members of APEC, which includes economies as diverse as the United States and Papua New Guinea (last year’s APEC host), are home to almost three billion people and represent close to half of world trade.

When the organization formed in 1989, APEC had Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and the United States as founding members. China; Hong Kong, China; and Chinese Taipei joined in 1991. Mexico and Papua New Guinea acceded in 1993, and Chile joined in 1994. In 1998, the addition of Peru, Russia, and Vietnam brought the organization to its current membership level.

APEC Members

Every year one of the 21 APEC member economies serves as the APEC Chair. Over the course of a year and typically in multiple cities, the Chair hosts a series of senior officials’ meetings, ministerial meetings, and a Leaders meeting. Ministerial meetings include gatherings of Trade and Foreign Ministers from each of the economies, as well as sectoral ministers overseeing other key areas, including energy, finance, and education. The host economy also welcomes the APEC Business Advisory Council (ABAC), up to three senior business leaders per economy, appointed by their governments, who provide private sector input into the APEC process.

Between 1989-1992, APEC dialogues were held at the senior official and minister level. In 1993, former U.S. President Bill Clinton began the practice of an annual leader meeting when he hosted an APEC meeting in Seattle. The following year, APEC leaders made a commitment to jointly work toward free and open trade in the Asia-Pacific by 2020. This commitment is known as the Bogor Goals for the Indonesian city where APEC leaders met in 1994.

A defining feature of APEC is that members voluntarily take actions to reduce barriers to trade and investment without a requirement to make legally binding obligations. Beyond a core focus on trade and investment liberalization, APEC also promotes business facilitation, with the goal of taking time, cost, and uncertainty out of doing business across the region, as well as technical cooperation, to boost the technical capacity of APEC’s less developed members to drive secure and sustainable economic growth.

From Idea to Fruition

Notable accomplishments within APEC include its work on environmental goods, where members have undertaken tariff reductions on a list of 54 environmentally friendly goods. This tariff-cutting effort laid the groundwork for ongoing negotiations at the WTO on an Environmental Goods Agreement with expanded product coverage.

Another key APEC deliverable has been the APEC Privacy Framework, which established principles and implementation guidelines for privacy protection, and which underpins the APEC Cross-Border Privacy Rules (CBPR) system. Currently, eight APEC members—Australia, Canada, Chinese Taipei, Japan, Korea, Mexico, Singapore and the United States—participate in the CBPR system.

APEC also delighted many travelers on the APEC circuit with the creation of the APEC Business Travel Card, which allows cardholders visa-free access to APEC economies for up to 90 days and special APEC fast lanes in the major airports of APEC members. According to the 2018 report of the APEC Committee on Trade and Investment to Ministers, as of the end of June 2018, over 278,000 cards had been issued.

Onward to Santiago

Like a Chilean fine wine, the business travel card is something nice to have in hand given the over 200 working group meetings, workshops, ministerial, academic, and business meetings taking place over Chile’s APEC year. Chile’s host year will culminate in the summit of the 21 APEC leaders in November in Santiago. As the host economy, Chile has identified four priority areas on which it seeks concrete deliverables:

Digital Society, an initiative encompassing efforts to develop cross-border digital trade standards and make needed changes to education and labor systems;

Integration 4.0, which seeks to tackle some of the newer sources of trade frictions and enhance connectivity through customs coordination and border automation;

Women, Small and Medium Enterprises and Inclusive Growth, an agenda designed to increase women’s participation in the economy and to enhance the ability of small and medium-sized business to realize the benefits of trade in the region, including in the area of digital trade; and

Sustainable Growth, which includes initiatives to protect the marine ecosystem and promote cooperation on both energy and smart cities.

Division of Labor on Digital Trade Rules

Chile’s focus on the digital economy reflects the priority that APEC leaders have increasingly placed on promoting sound policies to govern digital trade in the Asia-Pacific region. The spotlight on digital policy is also a good case study in the iterative way global trade norms are shaped and how an organization like APEC both influences and is influenced by parallel policymaking efforts.

APEC prides itself on its role as an incubator of ideas and driver of initiatives in emerging areas of trade that matter not only to the Asia-Pacific region, but also globally.

Dating back to its 1998 APEC Blueprint for Action on Electronic Commerce, which defined principles for the development of e-commerce in the region, APEC members have recognized that without a framework to govern the surge in digitally enabled trade, the full potential of digital technologies may not be realized. They also understood the challenges associated with designing regulatory frameworks that encourage growth while protecting privacy and security, particularly given differing domestic regulatory approaches on key issues like treatment of data. In its work on the various building blocks for digital trade – from cross-border privacy rules to trade facilitation and services liberalization – APEC has engaged multiple outside organizations, including the International Chamber of Commerce, the Organization for Economic Cooperation and Development (OECD), and the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFAT), facilitating mutually beneficial idea exchange.

In 2016, 12 APEC economies signed the Trans-Pacific Partnership Agreement or TPP (the United States later withdrew). The TPP’s e-commerce chapter covered a range of traditional and emerging issues, including customs duties, electronic authorization and signatures, cross-border data flows, source code, cybersecurity, and privacy protections. Initiatives like the APEC Privacy Framework inspired certain TPP provisions but, unlike the APEC framework, what is now known as the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP) is a binding agreement with enforcement provisions. The reforms required by the agreement, including prohibitions on data localization and protections for the movement of data, will set a new bar as CPTPP potentially expands to new members and as new trade agreements are forged.

For example, in mid-May, on the sidelines of this year’s APEC meeting of Ministers Responsible for Trade, Chile’s Minister of Foreign Affairs, Singapore’s Minister of Trade and Industry, and New Zealand’s Minister for Trade and Export Growth announced the start of negotiations towards a Digital Economy Partnership Agreement. The officials announced an intent to build on the CPTPP e-commerce chapter, but also look at emerging areas like digital identity and artificial intelligence. Any agreement reached between Chile, New Zealand and Singapore will be open for accession by other WTO members who can meet the high-quality standards to be established in the agreement.

Underscoring the iterative nature of trade policy building, the three APEC and CPTPP members indicated that their work would build on the work underway within APEC, the OECD, and other international forums; generate ideas for use by countries negotiating free trade agreements; and complement current WTO negotiations on e-commerce. In the latter talks, 76 WTO members (including all APEC members except Indonesia, Philippines, Papua New Guinea, and Vietnam) are working to create multilateral rules governing electronic transactions.

Family Photos APEC

Culture and Consensus

APEC members leverage their APEC host year to drive progress on their national trade priorities in the spirit of collaboration and consensus. The various APEC meetings throughout the year also provide an opportunity to showcase the member’s unique achievements before large audiences of distinguished visitors, while also showing off the cities where the meetings take place. This year, for example, Chile will welcome more than 15,000 representatives of member economies, APEC observers, business leaders, and international press in Viña del Mar, Puerto Varas, and Santiago.

Shining a spotlight on the unique cultural offerings of a host economy – such as the Royal Barge Procession for APEC leaders on the Chao Phraya River in Bangkok in 2003 or China’s grand 2014 APEC welcome ceremony with light shows, singing, and dancing – is also a time-honored tradition. Unfortunately, the infamous “silly-shirted” photos tradition may be wavering. The last time the United States hosted APEC in 2011 in Hawaii, President Obama found APEC-like consensus agreement to nix the collective donning of aloha shirts and grass skirts, quipping, “I didn’t hear a lot of complaints about us breaking precedent on that one. I thought this may be a tradition that we might want to break.”

_______________________________________________________________________

Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.

This article originally appeared on TradeVistas.org. Used with permission.