Vaccine dispute suggests a new role for the WTO

Today’s the day. A mere nine months after Roberto Azevêdo unexpectedly quit a year early as World Trade Organization director-general, the institution acquires a new head in Ngozi Okonjo-Iweala. Famously the first African and first female DG, but also the first without a strong trade background, with a career history instead of macroeconomics and finance, development and public health.

In the next week or two we’ll have a look at what ails the institution in various ways. In today’s main piece we look at how Okonjo-Iweala’s unusual background might fit with taking the WTO in a new direction. In Tit for tat, we ask Eversheds Sutherland’s James Lindop three questions on why UK businesses are struggling to apply the Brexit deal’s rules of origin.

The Covid patent debate as a conversation opener

During the DG campaign Okonjo-Iweala made a lot of her role as the chair of Gavi, the global alliance to improve developing countries’ access to vaccines. As it happens, she lands right in the middle of a big barney about the WTO’s role in protecting patents for Covid vaccines and other meds. It’s a subject on which Okonjo-Iweala has already had a bit to say, generally of the emollient need-to-find-a-middle-way variety.

The WTO isn’t the obvious institution to address the vaccine production problem. So is she in charge of the wrong organisation? Not necessarily, if she can turn the WTO in the direction that some have always hankered after — a convener of bigger debates and catalyst for wider action.

To recap: as we reported in October, India and South Africa, the WTO’s resident gadflies, requested a sweeping waiver of patent rights (for lots of medical products, not just vaccines) under the WTO’s Trips agreement on intellectual property. The request has since been joined by more than 50 developing countries including some big blocs such as the Africa Group and the Least Developed Country caucus.

Predictably, the advanced economies where the pharmaceutical companies are based (EU, US, Switzerland) pushed back hard. They said the issue with biologic vaccines wasn’t patents so much as transferring technological knowhow. This isn’t really something that a Trips waiver can achieve. Fair point, we’ve said so ourselves. End of story, waste of time bringing it up at the WTO?

Not necessarily. Some of the more sympathetic advanced economies such as Canada asked developing economies for examples of how they had been disadvantaged. This elicited a series of submissions and counter-questions on that subject.

If everyone involved can turn this into a joined-up conversation about vaccine research and development, finance, manufacturing capacity and distribution, it might lead to some constructive action. There’s a shortage of credible institutions to host these discussions. The World Health Organization is the obvious one, but it doesn’t have the technical and organisational capacity of the WTO, not to mention the odd problem with credibility. If not the main host for these conversations, the WTO can at least be a catalyst. After all, in non-lockdown times it’s only seven minutes by taxi from one organisation to the other, Geneva traffic permitting.

Even as we write this in Brussels we can hear the bristling of WTO purists across the mountains and plains from Geneva, not to mention around town here. “It’s not what the WTO is for!” they will cry in anguished unison, and they have a point. The WTO is basically a big trade treaty with a negotiating function to expand it and a bunch of committees and a dispute settlement process to mediate breaches of it. It’s not a development or public health agency with money or an executive institution with its own powers.

But the WTO dispute settlement process is limping and the negotiating function has more or less frozen (more on that, including other spicy activities from India and South Africa, in forthcoming editions of Trade Secrets). It has played only a minor role in combating damaging protectionism during the Covid-19 pandemic. If the WTO and its high-quality but underused permanent secretariat want a role, and can manage to stay more or less neutral in it, the body might make itself useful here.

Playing that lesser role rather than granting the Trips waiver won’t actually be much of a surprise or disappointment to Pretoria and New Delhi. The Indians and South Africans may be awkward customers, but they aren’t naive. From the beginning, they knew their waiver request was an opening bid to start a conversation. “As much as the discussion in the room has moved, the discussion outside of the room has also been very important,” a South African official told us. “The discussion outside the room is a barometer of the kind of things that are happening inside.”

One final thing: if the WTO does want to take a risk and play this kind of role, its members need to do something about transparency. Currently the ambassadors’ meetings to discuss these issues are held behind closed doors and there is no presumption that interventions are published. Open it up, let’s see who’s saying what. You can’t host a conversation if you don’t let anyone outside listen.

Charted waters

UK plc is up for sale. Daniel Thomas and Peggy Hollinger have a great read here on how, two months after Brexit, the value of British businesses sold to overseas buyers is the highest on record for the opening months of the year. That follows a bumper round of purchases over the second half of 2020. Here’s how it looks in chart form:

Tit for tat

James Lindop, of Eversheds Sutherland, says businesses must carry out an impact assessment and understand how the relevant rules of origin affect their operations and revenue streams

We ask James Lindop, head of Eversheds Sutherland’s international trade practice, about why the trade and cooperation agreement’s rules of origin are proving so tricky for businesses to follow.

An important aspect of the trade and cooperation agreement is on rules of origin. Can you explain what is meant by this?

Rules of origin are used to determine where products or materials used in their production originate, rather than from where they have been shipped, in order to identify what customs duties and restrictions may be applicable on importation. Broadly speaking there are two types of rules of origin, “non-preferential” (applying to trade under WTO rules where there is no alternative agreement or regime) and “preferential” (applying to trade between countries that have a preferential trade arrangement). In respect of the latter, free trade agreements, such as the TCA, offer preferential treatment to products originating in the contracting parties. For this reason, rules of origin are subject to specific negotiation and constitute a crucial part of any trade agreement. Under the TCA’s rules of origin, products moving between the EU and the UK may benefit from preferential treatment (zero tariffs) only if it can be demonstrated that they originate in either the EU or the UK.

This sounds like something beneficial. Why are we seeing businesses struggling with this aspect of the TCA so much?

Demonstrating that you satisfy the relevant rule of origin depends on a number of factors such as the complexity of the goods being produced, the quantity of components and the number of countries involved in production. Manufacturers need to be absolutely clear about where components originate to analyse whether the ultimate product being moved between the UK and EU can in fact be considered as “originating” under the TCA. Given the highly integrated nature of EU/UK supply chains, these rules can lead to some rather perverse consequences, such as EU goods being sold tariff-free into the UK, failing to undergo sufficient processing or working to be of UK origin and being sold back to, say, the Republic of Ireland subject to tariffs.

Another difficulty is the increased administrative burden to ensure compliance. Demonstrating origin can be complex if the final product contains components from many different countries; the exporter/importer may need to obtain suppliers’ declarations to prove the origin of materials used in production.

Are the problems we’re now seeing likely to be ironed out in the months ahead as firms adapt?

For many businesses — particularly those with an existing exposure to rules of origin — compliance will become easier as they familiarise themselves with the rules that apply to their particular products, make adjustments to supply chains and develop methods to streamline the administrative process of proving and declaring origin for customs clearance purposes. However, for some the TCA’s rules of origin may continue to present a significant administrative burden and cost, particularly if they are unable to adjust their supply chains to ensure that the components that go into their products are sourced and processed in a way that could confer originating status on the final products, and indeed for low-value goods where there is no carve-out for compliance with the rules. Businesses must carry out an impact assessment and fully understand how the relevant rules of origin impact their operations and revenue streams.

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Source: Economy - ft.com