WTO – Outlook to MC13: Fostering a Level Playing Field and Plurilateral Initiatives
February 2024
Executive Summary
▪ German industry wholeheartedly endorses the multilateral rules-based system as the bedrock of international trade. These policy recommendations aim to promote urgent reforms of the multilateral rulebook and continue to support the WTO at its core
▪ The BDI supports the aim of a fully functional dispute settlement system by 2024 and urges the European Union to take the lead in current technical talks with the U.S. and other key allies.
▪ The BDI urges all WTO membersto support a continuation of the Moratorium on Customs Duties on Electronic Transmissions at the WTO’s Thirteenth Ministerial Conference (MC13).
▪ German industry welcomes the proposals of the Trilateral Initiative (EU-Japan-United States) on appropriate disciplines. They represent an important step towards restoring fair competition.
▪ If the WTO Agreement on Subsidies and Countervailing Measures (ASCM) cannot be modernized multilaterally, a plurilateral agreement could prove a viable interim step.
▪ To achieve a level playing field, the EU should pursue multilateral, plurilateral - in the best case, under the WTO – and bilateral efforts (such as in free trade agreements, e.g. with MERCOSUR) to develop new disciplines on industrial subsidies and state-owned enterprises.
▪ WTO-rules on agricultural trade should tackle all trade distorting subsidies and also be modernized to address current and upcoming challenges of sustainability and climate neutrality.
▪ TRIPS-Agreement: Effective protections of intellectual property rights are the basis for investment and innovation. If such protections are removed, there is a risk that it will no longer be possible to respond adequately to the health threats posed by Covid-19 and other pandemics through innovation.
Industry is committed to the WTO
Since its founding in 1995, the World Trade Organization (WTO) has served as the guardian of the rules-based, open trading system, providing the stability and predictability that companies need to trade, invest, and create jobs. Now with the WTO in crisis we face several challenges that need to be addressed to have a level playing field fostering trade, prosperity, and wealth.
In this sense German industry wholeheartedly endorses the multilateral rules-based system with its fundamental principles as the bedrock of international trade. With our political recommendations, we want to advance the necessary reform of the WTO and continue to support its core. The priority remains the preservation and further development of multilateral rules to govern the global trading system.
German Industry calls for action to overcome the deadlock in the debate and to move concrete improvements in the focus that make reform possible in the long run. These improvements must be made in certain issues surrounding the structure, the substance, and the procedure of the WTO
From an industry perspective, there are five areas of particular importance regarding the upcoming MC13: a functioning Dispute Settlement Mechanism, a permanent Moratorium on duties for electronic transmissions, a Level-playing field, modern Agricultural Subsidies, and strong Trade-Related Aspects of Intellectual Property Rights. Here in particular, we see a great willingness to make decisions and constructive proposals that have been made in several discussions. To achieve success in MC13, BDI also calls on the EU-Commission to push for and prioritize plurilateral initiatives within the WTO and in selected areas.
Functioning Dispute Settlement Mechanisms
Functioning mechanisms for dispute settlement are an important contribution to a WTO reform. BDI reiterates the key principles from its 2021 paper “Urgent Need for WTO Reform”1 , most of which remain relevant in the leadup to the 13th Ministerial Conference. Moreover, it welcomes the intensive discussions on WTO reform currently going on in Geneva, as well as the initial engagement shown by the U.S. on dispute settlement.
German industry supports the aim of a fully functional dispute settlement system by 2024 and urges the European Union to take the lead in current technical talks with the U.S. and other key allies. Substantive engagement must be the priority to expeditiously agree and execute reforms that address identified concerns with the WTO-Appellate Body.
The absence of a second instance in the dispute settlement mechanism could have the potential to incentivize protectionism and the increase of unjust trade barriers that cause retaliatory actions, as these cannot be properly addressed by complainants.
This endangers economic growth and resilience, as well as exacerbating already tense geopolitical challenges in the current climate in which trade disputes have become increasingly politicized.
Furthermore, BDI urges the US-Administration to lead by good example and return to the WTO negotiating table. Washington should also bear in mind that key WTO members will only agree to reforms if the US, for its part, respects international rules and stops blocking the dispute settlement function. We acknowledge the domestic political pressure the USA is facing today. However, we highlight that the USA has benefited greatly from multilateralism to date and will continue to be needed in the WTO.
A WTO that is fit for the digital economy
BDI backs the current aim to conclude the Joint Statement Initiative (JSI) on e-commerce as soon as possible. This initiative contributes positively to resilience and would allow enterprises and consumers to stay connected to markets, as well as simplifying Micro, Small and Medium Sized Enterprises (MSME) access to digital trade. Businesses need stability and predictability when navigating a complicated new area of commerce, and the JSI when completed would offer them this while protecting personal data.
The moratorium on customs duties on electronic transmissions should be made permanent, as new trade barriers and burdensome tariffs have negative effects on the further growth of digital trade. According to OECD analysis2, the potential government revenue of imposing such tariffs would be negligible in terms of total government revenue, and the tariffs themselves methodologically very complicated. Moreover, freely conducted electronic transmissions result in lower transport costs and increased consumer welfare.
Fostering Level-Playing Field & ASCM-Reform
BDI reiterates also the recommendations from its2020 Paper “Reform of the WTO Agreement on Subsidies and Countervailing Measures (ASCM)”3 German industry urges the European Union to work in the leadup to MC13 together with the U.S. and Japan to submit an expanded proposal on reforming the ASCM, ideally with more countries by its side.
2 OECD, Electronic transmissions and international trade – shedding new light on the moratorium debate, 2019, <57b50a4ben.pdf (oecd-ilibrary.org)>
3 Reform of the WTO Agreement on Subsidies and Countervailing Measures
If the United States is unwilling to engage productively on the issue and move the Trilateral Initiative forward, German industry supports the EU’s doing so with other valuable partners, also from other regions. The regulatory gap to effectively address market distortive practices, particularly around industrial subsidies, must be addressed quickly and sufficiently. As multilateral reform of the agreement remains unlikely, considering market distortions particularly coming from China, German industry would support a plurilateral agreement as a viable interim step.
In the political debate on reforming the ASCM, a more intensive focus on industrial subsidies is becoming increasingly important. Transparency and analysis regarding industrial subsidies and its rule setting as well as enhanced rules and clarity for SOEs are needed
German industry supports efforts, e.g., by the OECD or the World Bank to tackle a lack of information and to foster analytical understanding of industrial subsidies, affecting the global level playing field. German Industry calls for an update of rules for industrial subsidies that are geared towards megatrends such as digitalization, demographic and climate change, or the green transition. In this context clarification which type of subsidies are sometimes allowed and which are never allowed is needed. Furthermore, BDI supports efforts to clarify the definition of 'public body', which would explicitly include SOEs. These definitions should aim to establish harmonized notification rules that provide clarity on potential subsidy providers, such as SOEs.
Promoting fair and sustainable trade in agriculture and fishing
While the global food systems have evolved, the disruptions of recent years have shown how fragile these systems can be and highlighted the urgent need for policies to be reviewed, to meet the challenge of providing livelihoods all along the food value chain; and doing so while increasing the environmental sustainability of the sector. While domestic support policies are used to address emergencies or market failures, they can also threaten fair competition, have negative impact on consumers and undermining public support for an integrated global economy
The agricultural sector and the industries based on it need fair international competitive conditions. The BDI is therefore calling for the WTO to address unfair trading practices at multilateral level. All forms of export subsidies should be abolished. Internal trade distorting support measures should also be capped for newly industrialized countries. WTO-rules on agricultural trade should also be modernized to address current and upcoming challenges of sustainability and climate neutrality. This also applies on curbing fisheries subsidies contributing to overcapacity and overfishing, that need to be addressed in the negotiations at the upcoming MC13.
There is need for subsidies that enable public good provision and benefit agricultural practices that have intangible value and can lead to enhanced and sustained food systems.
These include, for example, investments for decarbonization, landscape conservation, renaturation measures and the preservation of biodiversity.
BDI believes that improving transparency on subsidies is an indispensable first step and government should be encouraged to fulfil their domestic support notification commitments. Further, any negotiations on agricultural domestic support should be tied to sustainable trade liberalization, as different governments utilize different policies to support their farmers, thus a holistic solution is required. Any harmful support should be reduced or reoriented towards climate change adaptation, emission reductions, resilience, and sustainable productivity growth.
Strengthen Trade-Related Aspects of Intellectual Property Rights
For an innovation-driven country like Germany, Intellectual Property (IP) plays a key role in long-term competitiveness. Therefore, Trade-Related Aspects of Intellectual Property Rights (TRIPS) are of particular importance. Regarding the discussion of the extension of the TRIPS waiver, German industry remains highly concerned that any erosion of IP rights will undermine the development of new, innovative health solutions and their global distribution without contributing to the improvement of the health situation in a pandemic.
German industry is also highly concerned that this path of discussion will spread to other key technology areas other than pharmaceuticals, such as climate and energy technologies.
Industry continues to support voluntary approaches and broader holistic strategies to enable equitable global access, working in partnership with governments and other stakeholders. Industry efforts to date have included measures such as tiered pricing, voluntary licensing, supply agreements and other approaches, which have provided multiple access pathways to all low- and middle-income countries. Furthermore, these efforts have involved collaboration with governments and generic producers, including in multiple developing countries, and with multilateral organizations such as COVAX, Medicines Patent Pool, Global Fund and UNICEF.
While we welcome proposals that would enable voluntary tech transfers on mutually agreed terms, the role of governments should be providing a framework for voluntary and mutually agreed upon technology transfer. It is however crucially important to underline that the COVID-19 pandemic has made clear that tech transfers and voluntary licensing are not a panacea that can on their own resolve issues of access and equity. There continues to be overwhelming evidence that regulatory barriers, inadequate healthcare infrastructure, lastmile delivery issues, trade barriers and lack of awareness of available treatments are all significant barriers to access, and these remain largely unaddressed. As the recent report from the USITC makes clear, most developing countries have not authorized therapeutics in their own countries: “only 16 [low-income and lower-middle-income countries], including five countries in Africa, have approved or authorized COVID-19 therapeutics for their own markets.” This is true even in cases of treatments approved in the EU and US and who have been granted WHO prequalification.
Considering these challenges, no amount of licensing, of any kind, would address the lack of availability of COVID-19 medical countermeasures (MCMs). Nor would production under license for any operator in an LIC or LMIC make commercial sense.
It was the existing strong framework for the protection of intellectual property that gave the global community the dozens of vaccines and therapeutics now available for the prevention and treatment of COVID-19. Such a success was only possible because hundreds of projects researching and developing MCMs were launched – any policy change that would negatively impact the number of companies willing and able to develop products for the next pandemic would inevitably mean that we have fewer, not more, vaccines and therapeutics.
Therefore, BDI strongly recommends the following principles to be followed during the discussions on TRIPS of the Ministerial Conference:
▪ The Ministerial Conference should decide not to extend the TRIPS waiver of MC 12 on therapeutics and diagnostics. It should also abstain from taking steps to expand the ideas of this exception clause to other areas of technology.
▪ The Ministerial Declaration should not change the existing rights and obligations under the WTO agreements, particularly concerning the TRIPS agreement.
▪ References to transfer of technology should be on a voluntary basis only and in agreement with WTO existing rules.
▪ The Declaration can reaffirm language of key WTO instruments in a coherent flow making more explicit links with pandemic preparedness and response.
▪ A targeted workstream could be created to further discuss IP elements in pandemics, for instance a list of recommendation on how to foster voluntary technology transfer that contributes to building capacity for pandemic preparedness and response.
In addition to the IP dimension, it is critical that the Ministerial Declaration also develops an ambitious trade and health agenda that supports innovation, streamlines regulatory frameworks, and strengthens supply chains.
Imprint
Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu
T: +49 30 2028-0
Editors
Cedric von der Hellen Senior Manager, External Economic Policy
T: +49 30 2028-1602 c.hellen@bdi.eu
Matthias Krämer
Head of Department, External Economic Policy
T: +49 30 2028-1562 m.kraemer@bdi.eu
BDI Document Number: D1869