export restraints

COVID-19 – OECD first policy brief on trade issues related to the pandemic

As the world moves towards two million confirmed COVID-19 cases later this week (week of April 13) and global deaths near 125,000, the EU and the United States continue to hold center stage with the largest number of cases and deaths. As of April 11th, the EU represented 39.29% of confirmed cases and 57.9% of deaths. The UK (now not part of the EU) was 4.25% of confirmed cases and 8.77% of deaths. The United States had 30.34% of confirmed cases and 18.39% of deaths. Collectively, the EU, UK and US have had 73.88% of confirmed cases, 85.07% of deaths despite having just 10.86% of the world’s population. See attached table.

Situation-update-worldwide-as-of-11-April-2020

The rate of infection is picking up in a wide range of countries, including in areas with larger populations and often lower per capita incomes. Prior posts have looked at a range of issues surrounding COVID-19 and trade policy responses, including proposals from business groups, intergovernmental organizations and the actual response of countries and territories attempting to deal with the global health pandemic.

On Friday, April 10, the OECD released the first in a series of policy briefs on trade issues related to COVID-19, The title of the policy brief is simply, COVID19 and International Trade: Issues and Actions. https://read.oecd-ilibrary.org/view/?ref=128_128542-3ijg8kfswh&title=COVID-19-and-international-trade-issues-and-actions.

The policy brief starts with the statement that “In a challenging and uncertain situation, trade is essential to save lives – and livelihoods”. Going beyond the March 2020 OECD Interim Economic Outlook estimate of the impact of global growth (halved to 1.5%), the policy brief estimates that each month extension of containment measures will further reduce global growth by 2 percentage points. The brief then reviews the wide range of challenges to nations and the world in both coping with the health dimensions of the pandemic and the extraordinary challenges to economies, national and private sector debt, employment and other issues. The estimated “initial impact on activity of partial or complete shutdowns on activity in a range of economies” shows GDP declines of 15-35% (page 2, figure 1).

The policy brief then identifies four actions that can be taken by governments to improve trade flows and reduce the negative effects on economies:

“First boost confidence in trade and global market by improving transparency”

“Second, keep global supply chains going, especially for essentials”

“Third, avoid making things worse”

“Fourth, look beyond the immediate: Policy actions now could have a long life”

Improved transparency

The policy brief supports the need for governments to notify trade-related measures that are taken in response to the pandemic to the WTO. The WTO website contains a page on COVID-19 which lists notices provided to the WTO from governments (both trade restricting and trade liberalizing) in response to COVID-19. As of April 9th, 41 notifications had been received. https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm.

The OECD also shares information it receives with the WTO. In addition, the OECD provides information on agriculture production and trade to the Agricultural Market Information System “to ensure accurate, up-to-date information on market developments and country policies in critical commodities for the global food system.” Page 3.

With more than 60 trade restrictive measures flagged by observers, the efforts at improved transparency are a work in progress obviously dependent upon the actions of WTO Members.

Keeping supply chains going

The OECD policy brief reviews a range of developments since the start of the pandemic which have raised costs and complicated the flow of trade:

  1. Loss of air cargo as part of reduction in passenger flights;

2. Drop in ship traffic and increased procedures and documentation requirements; vs. establishment of some “green lanes” at ports and border crossing points;

3. Location of shipping containers in China at time of pandemic, creating shortages and raising costs;

4. Labor availability at ports reduced in many cases or increased costs from additional protective measures;

5. Limits on mobility of people affecting various trade processes (inspections, etc.);

6. Higher costs throughout supply chains from increased protective measures for workers.

For essential medical supplies, the OECD policy brief calls for removing tariffs, expediting certification procedures and enhancing trade facilitation..

While the policy brief recognizes the need for expanded production in a later section, it doesn’t address the need for increased transparency on or coordination of such efforts to expand production despite the obvious fact that a pandemic which moves around the globe creates temporary acute shortages of medical supplies where trade could minimize harm to populations going through surges in infections.

As reviewed in my post of April 10 on scarcity, a significant part of the health challenge in medical goods in the current COVID-19 pandemic flows from the rapid demand expansion exceeding global supply availability. This contrasts with food security issues in 2020 where there are adequate supplies of key agriculture products but there are concerns because of border closures, mobility issues and the like.

Avoid making things worse

The OECD policy brief has avoiding export restrictions on essential goods as the chief action countries can take to avoid making things worse. The brief reviews the 2007-2008 food price spikes that flowed from large scale export restraints on agriculture products and the harm done to many countries as a result.

In discussing food security, the brief states, “While there is not an immediate threat to global supplies of basic foodstuffs, there is the potential for specific food supply chains to be severely disrupted, including from lack of seasonal workers for planting or harvesting key crops, logistics constraints, and additional SPS and technical measures. Vigilance will be required to ensure that crisis- or policy-induced risk factors do not cause disruptions in supply, in particular if the containment measures related to COVID-19 are long-lived. ” Pages 5-6

For essential medical goods, there is a critical need for expanded production which some governments are pursuing often in connection with their private sectors. Trade challenges on essential medical goods include the use of export restraints, guaranteed purchases and requisitioning of goods. More than 60 countries have imposed export restraints, and, with the US and EU the current centers of COVID-19 infections, many other countries are having great difficulties obtaining adequate or any supplies.

OECD recommendations, such as limiting future export restraints, reducing tariffs and not imposing new tariffs or trade restrictive measures, are similar to those recommended by other groups. However, nothing in the recommendations deals with the very real need for better information on supply availability and expansions vs. current and projected demand, or for the possible role of international organizations or others in coordinating shifting of supplies from countries that have gotten past the worst of the pandemic to others with limited capacities and resources.

Look beyond the immediate: Policy actions now could have a long life

The OECD policy brief examines three sets of issues in terms of future implications — the massive financial assistance being provided, the examination of the shape of global supply chains, and preparing for future pandemics. These are taken up in turn below.

A. Governmental financial assistance

Because of the massive support governments are pumping into their economies to avoid collapse (some $8 trillion based on some recent estimates), there are obvious questions about how such support is structured, how governments will modify their conduct once the pandemic is past or economies have reopened. As the policy brief states,

“The scale of public investments needed during and after the crisis – from health systems and social protection, to access to education and digital networks – underscores the need for support to firms and sectors to be as efficient as possible to maximise available public resources. Well-designed support will also be less market-distorting and give rise to fewer concerns about the impact on international competition. Fairness – in both the national-level distribution of benefits ad in global competition – is essential for maintaining public support for trade and the open markets need to get through and emerge from the crisis.” Page 8.

Key principles for support granted include the following, according to the policy brief:

  1. Support should be transparent (including terms of support);
  2. non-discriminatory and not used to rescue companies that would have failed absent the pandemic;
  3. time limited and reviewed for continued relevance/need;
  4. targeted at consumers vs. tied to consumption of specific goods and services.

B. Global supply chains

An issue important to a number of governments has been the structure of existing supply chains and whether supply chains should be reshored or at least shortened. The OECD policy brief focus on rethinking the “resilience” in global supply chains but cautions against quick answers or simply reshoring.

C. Being ready for the next pandemic

The OECD policy brief also reviews actions the global community should take to be ready for the next pandemic. Five elements of a possible agreement among countries are suggested for consideration:

  1. “Ensuring transparency”;
  2. “Cutting tariffs on essential medical products”;
  3. “Disciplines on export restrictions” (essentially G20 language);
  4. “Upfront investments in co-operative solutions” (including creation of stockpiles at national or regional level);
  5. “addressing the needs of the most vulnerable countries”.

Conclusion

The first OECD policy brief is a useful contribution to the discussion of trade issues that can and should be addressed to reduce the negative effects of the COVID-19 pandemic both in the short-term and in the recovery phase. The proposals are not surprising and reflect underlying views of the member countries. As is true of other papers and proposals for action, collective action depends on leadership and willingness of like-minded countries to act for the common good. With a serious pandemic with dimensions not experienced in 100 years, large and advanced economies have talked the talk of cooperation and keeping markets open but haven’t always walked the walk of greater global cooperation or avoiding trade restrictive measures.

The actions of major governments are not surprising considering the pressing needs for supplies within countries that have been at the epicenter of the pandemic in the early months of its existence or the reaction of others worried about supplies or about food security. Political leaders obviously respond to the needs of their citizens first, particularly where needs are about life and death.

Unfortunately, such local focus doesn’t help smaller and/or economically weaker countries, many of whom may find themselves part of the epicenter of the pandemic in coming months.

Moreover, governments around the world generally have shown a poor ability to spend the money to prepare for future events which are uncertain as to timing or severity. It seems unlikely that the pandemic of 2020 will result in greater collective action and preparation for the future.

Indeed, the extraordinary sums that are being needed to avoid total collapse of economies in 2020 will create additional challenges for the global trading system going forward and will likely limit actual efforts to avoid a repeat in the future.

End note

The OECD has indicated that they have four additional policy briefs in the series under preparation. The future briefs deal with trade facilitation, government support, global value chains for essential goods and services trade (page 11), in addition to a paper looking at COVID-19 and Food and Agriculture: Issues and Actions.

COVID-19 – WTO report on medical goods; FAO report on food security

The World Trade Organization has a page on its website that is dedicated to COVID-19 including references to statements from various governments, international organizations, business groups, information from the WTO itself including a compilation of notifications by Members of actions (whether trade limiting or trade expanding) taken in response to COVID-19, and links to a range of websites providing important information on the pandemic. Joint statements are also included. See today’s joint statement between the WTO and the World Customs Organization, https://www.wto.org/english/news_e/news20_e/igo_06apr20_e.htm.

Last Friday, April 3rd, the WTO released a sixteen page note entitled “Trade in Medical Goods in the Context of Tackling COVID-19”. https://www.wto.org/english/news_e/news20_e/rese_03apr20_e.pdf. The note is very useful in terms of providing some definition to a range of products relevant to handling the COVID-19 crisis, identifying major importers and exporters of various product types and providing information on tariffs on the product categories for all WTO Members. The note identifies the following “key points”:

“• Germany, the United States (US), and Switzerland supply 35% of medical products;

“• China, Germany and the US export 40% of personal protective products;

“• Imports and exports of medical products totalled about $2 trillion, including intra-EU trade, which represented approximately 5% of total world merchandise trade in 2019;

“• Trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019;

“• Tariffs on some products remain very high. For example, the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%;

“• Protective supplies used in the fight against COVID-19 attract an average tariff of 11.5% and goes as high as 27% in some countries;

“• The WTO has contributed to the liberalization of trade medical products in three main ways:

“➢ The results of tariff negotiations scheduled at the inception of the WTO in 1995;

“➢ Conclusion of the plurilateral sectoral Agreement on Pharmaceutical Products (“Pharma Agreement”) in the Uruguay Round and its four subsequent reviews;

“➢ The Expansion of the Information Technology Agreement in 2015.”

As is true with any analysis of data, the reader needs to understand what is covered and what is not and how good a fit the data provided have with the topic being discussed.

For example, the note reviews four categories of products relevant to the world addressing the COVID-19 pandemic (page 1):

  • “medicines (pharmaceuticals) – including both dosified and bulk medicines;
  • “medical supplies – refers to consumables for hospital and laboratory use (e.g., alcohol, syringes, gauze, reagents, etc.);
  • “medical equipment and technology; and
  • “personal protective products -hand soap and sanitizer, face masks, protective spectacles.”

While the four categories are, of course, relevant to addressing the COVID-19 pandemic, the products covered by the tariff schedule categories are both over- and underinclusive if one is trying to understand the size of global trade in medical products directly relevant to the global efforts to address COVID-19.

The report’s data are overinclusive because the Harmonized System of Tariffs used by most nations is only harmonized to the six-digit level of specificity. The categories included in the WTO note cover both COVID-19 related products and many others. Stated differently, nearly all of the product categories identified in Annex 1 to the note include at least some items that are not germane to the current pandemic. This is a limitation on the usefulness of the data flowing from the lack of more specific classifications that all countries adhere to. As the six-digit data are all that are available with a consistent definition around the world, it is not surprising that the WTO relied on the data. Arguably better, but not uniform data could have been derived by reviewing the 8-, 9- or 10-digit statistical data for imports and exports of at least major Members, but that was not done.

Similarly, the product coverage is underinclusive as recognized in the WTO note (page 2). “It should be noted that this note focuses solely on the final form of these products and does not extent to the different intermediate products that are used by global value chains in their production. The protective garments for surgical/medical use are not included in the analysis, because it is impossible to distinguish them from general clothing product in the HS classification.”

As governments and companies have articulated over the last several months, many of the key final products (e.g., ventilators) require a large number of inputs which are often sourced from a variety of suppliers around the globe. For example, one ventilator company which assembles the ventilators in the United States is reliant on circuit boards from its facility in China to maintain or increase production. Other companies bring various inputs in from Canada or Mexico or other countries as well as shipping U.S. components to other countries for final assembly. The same reality is obviously true for producers of medical goods in other countries as well. Thus, an inability to cover inputs significantly understates global trade volumes of products relevant to addressing the COVID-19 pandemic.

Similarly, there are shortages in many countries of the protective garments for which no data are included. These are important products traded that are directly relevant to the world’s ability to respond to COVID-19. The lack of coverage of those products understates the importance of personal protective products to the total and understates global trade.

The above is simply to say, the sections of the WTO note that look at trade patterns (imports, exports, leading players) are helpful in identifying possible breaks between products and possible major players but the data may be significantly off from the actual split among products or role of major players if complete data limited to products relevant for addressing COVID-19 were available. It may also understate the importance of keeping markets open even if there are relatively few imports of finished products.

To explore how overstated data may be, if one looks at the HS categories shown in Annex 1 for personal protective products and looks at the United States U.S. imports for consumption for 2019 at the 10-digit HTS level of detail, the top seven 10-digit categories by customs value accounted for more than 72% of the $17 billion in imports. Yet each of the categories would contain many products not actually relevant to efforts to address COVID-19. In fact five of the seven categories are basket categories.

3926.90.9990OTHER ARTICLES OF PLASTIC, NESOI
6307.90.9889OTHER MADE-UP ARTICLES NESOI
3824.99.9297CHEMICAL PRODUCTS AND PREPARATIONS AND RESIDUAL PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES, NESOI
9004.90.0000SPECTACLES, GOGGLES AND THE LIKE, CORRECTIVE, PROTECTIVE, NESOI
3926.90.7500PNEUMATIC MATTRESSES & OTHR INFLATABLE ARTICLES,NESOI
3824.99.3900MIXTURES OF TWO OR MORE INORGANIC COMPOUNDS
3926.90.4590OTHER GASKETS AND WASHERS & OTHER SEALS

Similarly, the analysis of applied tariff rates is useful in showing rates for product groupings and the rates for individual countries for those product groupings but may be less useful in identifying the assistance tariff reductions would have in the present time of the pandemic. Obviously, tariff reductions by any Member that imposes them on imported products relevant to the pandemic would reduce the cost for the importing country of the needed materials. But the extent of assistance varies significantly depending on the Member as the data in Annex 2 show.

As the EU/EEA/United Kingdom and the United States account for 73.9% of the confirmed cases in the world as of April 6, 2020, a review of the applied rates for those countries would identify likely benefit from tariff reductions by the countries with the major outbreaks at the moment. The EU has an average applied rate of 1.5%, the U.S. an average applied rate of 0.9%, Norway 0.6% and Switzerland 0.7%. These rates don’t include any special duties, such as US duties on China flowing from the Section 301 investigation (with some products being subject to potential waiver of additional duties). Thus, for the vast majority of current cases, the importing countries’ applied rates are very low and hence not a significant barrier to trade.

https://www.ecdc.europa.eu/en/geographical-distribution-2kistan019-ncov-cases; https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea

Other countries where the reach of the pandemic may intensify typically have much higher applied tariffs. As case loads intensify in other countries or in anticipation of such potential eventualities, countries with higher tariffs should be exploring autonomous duty reductions to make imported products more affordable. India has an average applied tariff of 11.6%; Pakistan an average rate of 10.0% and Malaysia a rate of 11.7% to flag just three Members with rates at or above 10%.

The WTO note is embedded below.

rese_03apr20_e

Food security and the FAO analysis of current agricultural product availability

In a prior post, I reviewed the compounding problems during the COVID-19 pandemic of some countries starting to impost export restraints on selected products (e.g., rice, wheat) to protect food supplies. Countries reported to be imposing export restraints on food had been Russia, Ukraine, Kazakhstan and Vietnam. A series of articles in Asian and European press have noted that Malaysia, the Philippines, Thailand, Indonesia, Myanmar and Cambodia have also introduced various restraints as well. Major agricultural groups in Asia are warning that disrupting movement of food (including movement of workers to help harvest, etc.) could lead to food shortages in Asia and have reviewed that Asian countries import some 220 million tons of agricultural products which underlines the need to keep markets open. See, e.g., https://www.scmp.com/week-asia/politics/article/3078376/coronavirus-food-security-asias-next-battle-post-covid-world; https://www.dairyreporter.com/Article/2020/03/30/Major-food-shortages-possible-in-Asia-says-FIA#.

While fear can lead to panic and various border measures, the actual situation globally as laid out by the Food and Agriculture Organization of the United Nations (“FAO”) in a recent paper is that there are more than sufficient supplies of food. The key is minimizing disruptions to production and distribution. This is not a period where major disruptions from drought or floods have caused shortages of products. Specifically, the FAO’s Chief Economist prepared a document entitled “COVID-19 and the risk to food supply chains: How to respond?” which was released on March 29. http://www.fao.org/3/ca8388en/CA8388EN.pdf. The paper starts with a section entitled “What we know”:

“Countries have shut down the economy to slow the spread of the coronavirus. Supermarket shelves remain stocked for now. But a protracted pandemic crisis could quickly put a strain on the food supply chains, a complex web of interactions involving farmers, agricultural inputs, processing plants, shipping, retailers and more. The shipping industry is already reporting slowdowns because of port closures, and logistics hurdles could disrupt the supply chains in coming weeks.

“In order to avoid food shortages, it is imperative that countries keep the food supply chains going. Unlike the 2007-2008 global food crisis, scarcity is not an issue this time. The supply of staple commodities is functioning well, and the crops need to be transported to where they are needed most. Restricting trade is not only unnecessary, it would hurt producers and consumers and even create panic in the markets. For high-value commodities that require workers (instead of machines) for production, countries must strike a balance between the need to keep production going and the need to protect the workers.

“As countries combat the coronavirus pandemic, they must also make every effort to keep the gears of their food supply chains moving.”

The paper then goes on to identify five actions needed to minimize the likelihood of food shortages arising during the pandemic. These actions are:

“Expand and improve emergency food assistance and social protection programs

“Give smallholder farmers support to both enhance their productivity and market the food they produce, also through e-commerce channels

“Keep the food value chain alive by focusing on key logistics bottlenecks

“Address trade and tax policies to keep the global trade open

“Manage the macroeconomic ramifications”.

With the number of countries already taking actions that are inconsistent with keeping global markets open for the movement of food supplies, the world is at risk of having a major complication added to the extrordinary economic shocks already being felt to address the health needs of the COVID-19 pandemic. Such a major complication would, as it did in 2007-2008, directly harm developing and least developed countries, countries least able to absorb additional shocks.

The report and a powerpoint from FAO are embedded below.

COVID-19-and-the-risk-to-food-supply-chains_-How-to-respond_

ca8308en

COVID-19 and the G20 Response

With the COVID-19 pandemic ramping up its reach and severity in many parts of the world and with the global economy reeling as a result, there is an understandable hope for a coordinated response from the major countries in the world to minimize the effect of the pandemic, ensure availability of medical supplies and equipment, and chart a path back to growth for all.

In the last week there has been both a virtual Extraordinary Meeting of the G20 leaders (March 26) and a virtual meeting of trade ministers (March 30). Both meetings issued joint communiques intended to express the commitment of the G20 countries to keep markets open, minimize trade restrictions, share information and work to defeat COVID-19. See https://g20.org/en/media/Documents/G20_Extraordinary%20G20%20Leaders%E2%80%99%20Summit_Statement_EN%20(3).pdf; https://www.wto.org/english/news_e/news20_e/dgra_30mar20_e.pdf. The two joint communiques are embedded below. They were followed by a joint meeting of finance ministers today (March 31).

G20_Extraordinary-G20-Leaders’-Summit_Statement_EN-3

G20-Trade-and-Investment-Ministerial-Statement-March-30-2020

However, each of the leaders’ and trade ministers’communiques has been criticized by some analysts for not having specific commitments (e.g., agreeing to a standstill on export restraints or agreeing to temporarily reduce tariffs on certain medical supplies and equipment). Indeed, such concrete actions have been urged by not only various analysts but also by the World Bank. See https://www.worldbank.org/en/news/statement/2020/03/30/statement-by-mari-pangestu-managing-director-for-development-policy-and-partnerships-the-world-bank-at-the-virtual-meeting-of-g20-trade-ministers. The specifics urged by the World Bank at the G20 trade ministers meeting included the following:

“We suggest G20 Trade Ministers decide on concrete actions to mitigate the pandemic and speed up recovery. G20 Members could immediately undertake the following actions whilst advocating parallel action by all World Trade Organization Members.

“Refrain from new export restrictions on critical medical supplies, food or other key products. Where such emergency measures are applied, they should be targeted, transparent, proportionate with the emergency needs, and time-bound.

“Eliminate or reduce tariffs on imports of COVID-19 products, as well as lower or temporarily suspend tariffs and export taxes on food and other basic goods to safeguard household incomes and business activity.

“Ensure that vital products can cross borders safely, by ensuring continuity of border agency clearance for critical supplies and essential transport and logistics.

“Secure continued access to capital and trade financing to medium, small and micro enterprises (MSMEs).”

For some analysts, the failure to provide specific action steps reflects a claimed lack of leadership among the G20 leaders (in particular to a lack of leadership by the U.S.). Those raising concerns compare the communiques to those that came out from the financial crisis in 2008-2009 which contained some specific commitments including a standstill on trade restrictive measures.

Differences between the COVID-19 pandemic and the 2008-2009 financial crisis

While both events, the COVID-19 pandemic and the 2008-2009 financial crisis, can be described as major crisis moments for the global community, there is the very real difference of the COVID-19 pandemic threatening human life directly. WTO commitments have understandable carveouts for Members to address public health crises through deviations from their WTO commitments.

Politically, it is hard to imagine countries suffering major outbreaks of COVID-19 not having an initial primary commitment to address the internal needs of their citizens. This has led to many countries seeking at least temporarily to secure critical medical supplies and equipment to address the surge in illness that has followed the spread of the virus in individual countries. This includes both major developed countries like the members of the EU and major countries like China (in the early stages of the outbreak there). The daily pleas from governors and mayors across the United States for more supplies and equipment show the internal pressures for governments to secure supplies and equipment critical to the short-term needs.

This does not mean that proposals for joint action aren’t meritorious or that some actions by individual countries can be harmful to overall global welfare as well as their own short-term interests. Rather the internal challenges will differ for different countries or territories and may make joint actions at a given point in time less doable. In such situations, individual country actions can be important with joint actions undertaken where possible. For example, in the U.S. and in other countries, there is an effort to ramp up production of critical supplies and equipment. Such individual action can have important positive effects on the global response to COVID-19.

While many countries sent supplies to China back in January-February when China was going through its peak needs and ramping up its production, China has been exporting supplies to various countries as its internal needs recede and external demand ramps up. Press accounts, for example, indicate that the U.S. has procured 10 plane loads of medical supplies from China, the first of which arrived in the last several days in New York.

Similarly, the U.S. has been working with companies in the United States to increase production of medical personal protection equipment and of ventilators as part of its effort to address the surge in demand that is occurring in individual U.S. hot spots. Ramp up of production is also important in light of the global shortage of some of the items during periods of heightened demand. President Trump in a recent press conference indicated that it was likely that as production increased on ventilators in the U.S., there would be excess volume at some point that could be shared with other countries without sufficient supplies.

Thus, individual country actions can have important longer term benefits for other countries around the world.

Actions by the World Bank and International Monetary Fund to Assist Developing and Least Developed Countries Are Supported by G20 Members

G20 members are important players in both the World Bank and the IMF. As reviewed in statements by each organization in yesterday’s trade ministers meeting (World Bank) and today’s finance minister’s meeting (IMF), each organization is taking aggressive actions to provide assistance to developing and least developed countries to help in addressing COVID-19 and the recovery of economies after the pandemic. Such action is possible because of the support of the major economies in those organizations.

For example, the World Bank reviewed the following actions it is taking to respond to COVID-19 at yesterday’s trade ministers meeting:

“The WBG is providing fast, flexible responses to lessen the impact of COVID-19 on developing countries. The $14 billion Fast Track Facility approved on March 17 assists countries and companies in their efforts to prevent, detect, and respond to the rapid spread of COVID-19. We have emergency operations for 60 countries already underway and more to come.

“We are entering into the next phase of our response to further address the broader economic and social impact. The WBG will deploy $160 billion over 15 months to:

“Protect the poor and vulnerable through social safety net programs.
O􀃠er World Bank facilitated procurement to help clients access needed medical supplies and equipment, for no fee, to address the significant disrutption in supply chains.

Support businesses and their employees, especially MSMEs, through IFC trade and credit lines.

Strengthen economic resilience and speed of recovery through budget support and sectoral interventions, including in trade and investment.

“We and the IMF are also calling on all official bilateral creditors to suspend debt payments from IDA countries that request forbearance.”

Similarly, below is the statement by the IMF from today’s finance ministers meeting:

“March 31, 2020

“Washington, DC – International Monetary Fund (IMF) Managing Director Kristalina Georgieva made the following remarks today during an extraordinary conference call of G20 Finance Ministers and Central Bank Governors:

“Thank you to the Saudi G20 presidency for calling this extraordinary meeting.

“Outlook

“‘We welcome the decisive actions many of you have taken to shield people and the economy from COVID-19, that led to a decline in volatility in major financial markets in recent days. Nonetheless we remain very concerned about the negative outlook for global growth in 2020 and in particular about the strain a downturn would have on emerging markets and low- income countries.

“Our forecast of a recovery next year hinges on how we manage to contain the virus and reduce the level of uncertainty.

“Thus, we support an ambitious G20 action plan to strengthen the capacity of health systems to cope with the epidemic; to stabilize the world economy through timely, targeted and coordinated measures; and to pave the way towards recovery.

“IMF reforms

“And we will do our part. In fact, we got a strong mandate last Friday from our governing body, the International Monetary and Financial Committee (IMFC), on reforms to strengthen our crisis response.

“In particular, it endorsed initiatives to:

“· Enhance access to our emergency facilities, as now some 85 countries indicate they rely on them for financial support;

“· Build up our capacity to serve our poorest members; and

“· Help countries experiencing foreign exchange shortages, including possibly by short-term liquidity line.

“We also have good news on IMF resources.

“The U.S. recently approved (https://www.imf.org/en/News/Articles/2020/03/26/pr20109-usa-statement-on-the-unitedstates-congress-move-to-strengthen-the-imfs-resources) the doubling of the New Arrangements to Borrow, and our Executive Board yesterday agreed https://www.imf.org/en/News/Articles/2020/03/31/pr20123-imf-executive-boardapproves-framework-for-new-bilateral-borrowing-agreements) on a new round of bilateral borrowing to secure the IMF’s
$1 trillion lending capacity.

“Debt relief

“Lastly, I would like to direct your attention to the issue of debt of low-income countries.

“Starting with their debt obligations to the IMF, I am pleased to report that our Executive Board last Thursday approved (https://www.imf.org/en/News/Articles/2020/03/27/pr20116-imf-enhances-debt-relief-trust-to-enable-support-foreligible-lic-in-wake-of-covid-19) a reform of the Catastrophe Containment and Relief Trust (CCRT) that allows our poorest member countries to invest in crisis response rather than repay the Fund. I want to thank G20 members who have pledged financial support for the CCRT and call on others to join.

“And I support the G20 to urgently work on further easing the debt burden of our poorest members.

“At a time the world economy is at a standstill, official bilateral creditors could make a major contribution by offering a debt standstill to IDA-eligible countries, as World Bank Group President David Malpass and I proposed
(https://www.imf.org/en/News/Articles/2020/03/25/pr20103-joint-statement-world-bank-group-and-imf-call-to-actionon-debt-of-ida-countries) during our last meeting.

“It will also be important for other creditors to do their part, and I count on the G20 to help build consensus on a way forward for our poorest members.”

https://www.imf.org/en/News/Articles/2020/03/31/pr20124-remarks-md-kristalina-georgieva-conference-call-g20-finance-ministers-central-bank-governors.

Thus, the G20 through their involvement in multilateral organizations like the World Bank and the IMF are taking collective action to address various aspects of the COVID-19 pandemic and global recovery whether or not there are specific G20 actions taken outside of those organizations.

Additional Challenges and Opportunities For G20 Members

  1. access for transport moving goods

One of the unusual challenges flowing from COVID-19 is dealing with concerns about movement of people with the need for the movement of goods across borders. For example, many countries have imposed travel restrictions from certain offshore locations to try and control the spread of COVID-19. Even where there is not an outright ban on entry from certain foreign countries, there may be requirements for mandatory quarantine of people travelling from certain countries. The International Air Transport Association (IATA) has a webpage following measures taken by governments related to COVID-19. As of today, IATA shows 179 measures having been taken by countries around the world. See https://www.iata.org/en/programs/safety/health/diseases/government-measures-related-to-coronavirus/. IATA has urged countries to develop approaches that permit international transport to access countries without staff being quarantined. The consequences for the rapid movement of medical supplies and equipment if transport personnel can’t enter and exit in ways that are acceptable to receiving countries should be obvious. But the solution will potentially differ by each importing country’s risk profile compared to each exporting country’s risk profile. It is unclear what actions G20 countries are taking to address these concerns/needs. Transparency and a task force to identify current and best practices could be helpful in the short term on this critical issue.

2. transparency issues

G20 countries have agreed to support transparency of measures taken to address COVID-19, and the WTO has a webpage which is tracking notices provided by WTO Members. To date relatively few notices have been provided to the WTO (just 18 as of March 31, 2020). See https://www.wto.org/english/tratop_e/covid19_e/covid19_e.htm.

But transparency goes beyond WTO notifications and deals with issues such as transparency on developments in individual countries on the spread of the disease, research into possible vaccines, best practices in reducing the spread of the virus, information on potential medical supplies and equipment and on potential demand among countries (including efforts at expanding production).

While there is seemingly reasonably good information on the spread of the disease in many countries and at least basic information on research ongoing around the world, it is not clear that there is a clearinghouse for information on supplies or on anticipated demand. If not, this could be an area where business associations and governments could work collectively to develop information that could be useful in maximizing availability of products where and when needed, to identify likely bottlenecks in supply and permitting governments to incentivize expanded production. There is also the question of surges in needs for medical personnel that outstrip availability even in developed countries. Transparency on availability of personnel (active, retired, etc.) willing to move intracountry and internationally would be an extraordinarily important data base and could help countries with needs determine ability to handle temporary medical help.

3. Research and Development of Vaccines and Intellectual Property Issues

There are many businesses, government entities and research groups looking for a vaccine for the COVID-19. The greater the exchange of information, the greater the likelihood of an early breakthrough. Many issues arise around any bteakthrough in terms of intellectual property rights, global needs and affordability. How those issues are addressed will be an important part of any longterm global recovery and the human costs that will be incurred going into the future from the virus. A recent Congressional Research Service paper looks at certain possible TRIPs and subsidy issues. While the discussion in the paper isn’t necessarily accurate in terms of WTO implications in all instances, it provides a list of questions that G20 members and the broader global community will need to consider.

CRS-March-30-2020-COVID-10-International-Trade-and-Access-to-Pharmaceutical-Products

Conclusion

COVID-19 is an extraordinary challenge to the global community with the ability to overwhelm health systems in advanced economies in a matter of weeks to say nothing of the potential for harm to less advanced economies.

The G20 has called for coordinated action and stated the objectives of keeping markets open, limiting restrictions on trade, exchanging information and assisting developing and least developed countries. The individual countries who are part of the G20 have also been taking action through the World Bank and IMF to help other countries address challenges from COVID-19.

At the same time, major G20 players — US, EU countries, China — have faced major challenges in their territories which have required a focus on how to address national challenges effectively and quickly. Other countries and territories have also faced various levels of spread of COVID-19 and have focused on actions they have needed to minimize the spread and help their citizens. More countries are likely to be hot spots in the coming months.

The WTO and the GATT before it have recognized that obligations undertaken must have escape clauses when there are emergencies involving human health.

Thus, the art of the possible with COVID-19 may be the articulation of aspirational objectives by leaders or international organizations or by outside analysts, the exchange of information to permit better decisions, and individual or group action where possible within the context of domestic political realities.

Export restraints vs. trade liberalization during a global pandemic — the reality so far with COVID-19

The number of confirmed coronavirus cases (COVID-19) as of March 26, 2020 was approaching 500,000 globally, with the rate of increase in cases continuing to surge in a number of important countries or regions (e.g., Europe and the United States) with the locations facing the greatest strains shifting over time.

In an era of global supply chains, few countries are self-sufficient in all medical supplies and equipment needed to address a pandemic. Capacity constraints can occur in a variety of ways, including from overall demand exceeding the supply (production and inventories), from an inability or unwillingness to manage supplies on a national or global basis in an efficient and time responsive manner, by the reduction of production of components in one or more countries reducing the ability of downstream producers to complete products, by restrictions on modes of transport to move goods internationally or nationally, from the lack of availability of sufficient medical personnel or physical facilities to handle the increased work load and lack of facilities.

The reality of exponential growth of COVID-19 cases over weeks within a given country or region can overwhelm the ability of the local health care system to handle the skyrocketing demand. When that happens, it is a nightmare for all involved as patients can’t be handled properly or at all in some instances, death rates will increase, and health care providers and others are put at risk from a lack of adequate supplies and protective gear. Not surprisingly, shortages of supplies and equipment have been identified in a number of countries over the last three months where the growth in cases has been large. While it is understandable for national governments to seek to safeguard supplies of medical goods and equipment to care for their citizens, studies over time have shown that such inward looking actions can be short sighted, reduce the global ability to handle the crisis, increase the number of deaths and prevent the level of private sector response that open markets would support.

As we approach the end of March, the global community receives mixed grades on their efforts to work jointly and to avoid beggar-thy-neighbor policies. Many countries have imposed one or more restraints on exports of medical supplies and equipment with the number growing rapidly as the spread of COVID-19 outside of China has escalated particularly in March. Indeed, when one or more countries impose export restraints, it often creates a domino effect as countries who may depend in part on supplies from one or more of those countries, decides to impose restraints as well to limit shortages in country.

At the same time, the G-7, G-20 and others have issued statements or other documents indicating their political desire to minimize export restraints and keep trade moving. The WTO is collecting information from Members on actions that have been taken in response to COVID-19 to improve transparency and to enable WTO Members to identify actions where self-restraint or roll back would be useful. And some countries have engaged in unilateral tariff reductions on critical medical supplies and equipment.

Imposition of Export Restraints

The World Customs Organization has developed a list of countries that have imposed some form of export restraint in 2020 on critical medical supplies. In reviewing the WCO website today, the following countries were listed: Argentina, Bulgaria, Brazil, Colombia, Ecuador, European Union, India, Kazakhstan, Kyrgyzstan, Russia, Serbia, Thailand, Ukraine and Vietnam. Today’s listing is copied below.

List-of-Countries-having-adopted-temporary-export-control-measures-Worl.._

While China is not listed on the WCO webpage, it is understood that they have had some restrictions in fact at least during the January-February period of rapid spread of COVID-19 in China.

While it is surprising to see the European Union on the list, the Official Journal notice of the action indicates that the action is both temprary (six weeks – will end around the end of April) and flows in part from the fact that sources of product used by the EU had been restricting exports. The March 15, 2020 Official Journal notice is attached below.

EC-Implementing-Regulation-EU-2020-402-of-14-March-2020-making-the-exportation-of-certain-products-subject-to-the-production-of-an-export-authorisation

Professor Simon Evenett, in a March 19, 2020 posting on VOX, “Sickening thy neighbor: Export restraints on medical supplies during a pandemic,” https://voxeu.org/article/export-restraints-medical-supplies-during-pandemic, reviews the challenges posed and provides examples of European countries preventing exports to neighbors — Germany preventing a shipment of masks to Switzerland and France preventing a shipment to the U.K.

In a webinar today hosted by the Washington International Trade Association and the Asia Society Policy Institute entitled “COVID-19 and Trade – A WTO Agenda,” Prof. Evenett reviewed his analysis and noted that the rate of increase for export restraints was growing with 48 of 63 actions occurring in March and 8 of those occurring in the last forty-eight hours. A total of 57 countries are apparently involved in one or more restraints. And restraints have started to expand from medical supplies and equipment to food with four countries mentioned by Prof. Evenett – Kazakhstan, Ukraine, Russia and Vietnam.

Efforts to keep markets open and liberalize critical medical supplies

Some countries have reduced tariffs on critical medical goods during the pandemic and some countries have also implemented green lane approaches for customs clearance on medical supplies and goods. Such actions are clearly permissible under the WTO, can be undertaken unilaterally and obviously reduce the cost of medical supplies and speed up the delivery of goods that enter from offshore. So it is surprising that more countries don’t help themselves by reducing tariffs temporarily (or permanently) on critical medical supplies and equipment during a pandemic.

Papers generated by others show that there are a large number of countries that apply customs duties on medical supplies, equipment and soaps and disinfectants. See, e.g., Jennifer Hillman, Six Proactive Steps in a Smart Trade Approach to Fighting COVID-19 (graphic from paper reproduced below), https://www.thinkglobalhealth.org/article/six-proactive-steps-smart-trade-approach-fighting-covid-19

Groups of countries have staked out positions of agreeing to work together to handle the pandemic and to keep trade open. For example, the G20 countries had a virtual emergency meeting today to explore the growing pandemic. Their joint statement can be found here and is embedded below, https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.pdf.

dgra_26mar20_e

There is one section of the joint statement that specifically addresses international trade disruptions during the pandemic. That language is repeated below:

“Addressing International Trade Disruptions

“Consistent with the needs of our citizens, we will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders, and work to resolve disruptions to the global supply chains, to support the health and well-being of all people.

“We commit to continue working together to facilitate international trade and coordinate responses in ways that avoid unnecessary interference with international traffic and trade. Emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary. We task our Trade Ministers to assess the impact of the pandemic on trade.

“We reiterate our goal to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.”

The WTO Director General Roberto Azevedo participated in the virtual meeting with the G20 leaders and expressed strong support for the commitment of the G20 to working on the trade related aspects of the pandemic. https://www.wto.org/english/news_e/news20_e/dgra_26mar20_e.htm.

Separately, New Zealand and Singapore on March 21st issued a Joint Ministerial Statement which stated in part,

“The Covid-19 pandemic is a serious global crisis.

“As part of our collective response to combat the virus, Singapore and New Zealand are committed to maintaining open and connected supply chains. We will also work closely to identify and address trade disruptions with ramifications on the flow of necessities,”

https://www.thestar.com.my/news/regional/2020/03/21/new-zealand-works-closely-with-singapore-to-maintain-key-supply.

The Joint Ministerial Statement was expanded to seven countries (Australia, Brunei Darussalam, Canada, Chile, Myanmar, New Zealand and Singapore), on March 25th and is reportedly open to additional countries joining. See https://www.mti.gov.sg/-/media/MTI/Newsroom/Press-Releases/2020/03/updated-joint-ministerial-statement-25-mar.pdf

Conclusion

When a pandemic strikes, many countries have trouble maintaining open trade policies on critical materials in short supply and/or in working collaboratively to address important supply chain challenges or in taking unilateral actions to make critical supplies available more efficiently and at lower costs.

The current global response to COVID-19 presents the challenges one would expect to see – many countries imposing temporary restrictions on exports — while positive actions in the trade arena are more limited to date with some hopeful signs of a potential effort to act collectively going forward.

Time will tell whether governments handling of the trade dimension of the pandemic contributes to the equitable solution of the pandemic or exacerbates the challenges and harm happening to countries around the world.

Coronavirus (COVID-19) and trade, how bad will declines get?

What started as a novel coronavirus in China at the end of 2019/beginning of 2020 has transformed into a global pandemic. Data compiled as of this morning (March 20, 2020) shows a tripling of confirmed cases globally in the last fifteen days from 102,123 cases to 305,225. The number of countries and territories reporting at least one confirmed case now stands at 177 — -41 in Africa, 36 in the Americas, 39 in Asia, 55 in Europe and 7 in Oceania. See European Centre for Disease Prevention and Control, Situation update worldwide, as of 22 March 2020, https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases

The spread of COVID-19 in China has dramatically slowed in the last fifteen days. While there had been 80,759 confirmed cases of COVID-19 fifteen days ago in China (79.1% of the global totals), in the last fifteen days, China has reported only 731 additional confirmed case (0.36% of the new cases over the last fifteen days) with China’s share of global cases to date dropping sharply to 26.7% as of March 22. The European Union has shot into the number one slot for most confirmed cases and highest number of deaths. Data for the EU/EEA and UK show confirmed cases as of March 22nd at 141,858 (46.48% of global total) and with deaths at 7,319 (56.55% of the global total of 12,942). See European Centre for Disease Prevention and Control, Situation update for the EU/EEA and the UK, as of 22 March 2020, https://www.ecdc.europa.eu/en/cases-2019-ncov-eueea The United States is also finding a rapidly growing number of confirmed cases, numbers that are likely to grow dramatically higher as widespread testing abilities become available in the coming days and weeks. As of March 22, US confirmed cases were 26,747, 98.7% of which were identified in the last fifteen days.

With the rate of growth of the number of people infected with COVID-19 still accelerating in many parts of the world and with no currently available vaccine, a number of countries have taken increasingly stringent measures to try to control the spread of the virus. Moreover, many countries are facing growing challenges in terms of availability of testing supplies and ventilators, protective equipment (gloves, masks, etc.), medical facilities capable of handling severe cases, and simple workload for medical providers. Lockdowns of countries or cities or states/provinces for other than essential personnel has grown in an effort to flatten the number of cases and prevent medical systems from being overwhelmed. The wholesale closure of schools, restaurants, sports facilities and other venues is having high economic costs and obvious major challenges for significant parts of the populations in some countries. So too, travel restrictions first internationally and even in country have expanded. Social distancing is being mandated. Quarantining of individuals returning from foreign travel or who have been in contact with someone who has tested positive has disrupted lives for hundreds of thousands of people.

As reviewed in a recent Congressional Research paper entitled “COVID-19: An Overview of Trade-Related Measures to Address Access to Medical Goods,” some countries have implemented export restraints on medical supplies. Others have been reducing or eliminating tariffs on specific products in short supply in country. See, e.g., https://ustr.gov/about-us/policy-offices/press-office/press-releases/2020/march/ustr-response-coronavirus-crisis. Some countries have also been modifying import procedures to permit expedited clearance of critical medical goods. And some countries have been prioritizing domestic production of items deemed critical. The March 20, 2020 CRS paper is enclosed below.

CRS-March-2020-COVID-19-an-overview-of-trade-related-measures-to-addr.._

While there may be questions of WTO-compatibility of some of the actions being taken, the severity of the problem of the spread of coronavirus is leading to a wide range of actions by those nations hard hit by the virus as they attempt to safeguard the health and safety of their citizens.

International organizations like the World Trade Organization, businesses and governments are all having to rethink what can be done remotely, postponed or cancelled while efforts are ongoing to address the pandemic. The 12th Ministerial Conference that was to be held in Kazakhstan in June 2020 has been postponed for an unknown period of time. Meetings in the WTO have been cancelled for several weeks and efforts at virtual meetings are facing challenges. While efforts continue to make progress on fisheries subsidies talks, the challenges flowing from the pandemic may subconciously reduce the collective will to achieve a meaningful result (or any result) in the remainder of 2020.

Because of the severity of the virus on large portions of the population and the lack of a vaccine (with likely availability still a year or more away), efforts to estimate the effect of the virus on national or global economies has been an exercise in chasing a moving target. A March 4 release from UNCTAD looked at likely reductions in global trade from COVID-19 where the major disruption was in China and to supply chains dependent on Chinese inputs. A reduction in trade of $50 billion was estimated. https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf?user=1653. The March 4 estimate is dwarfed when one includes the collapse of the global airline industry, the harm to tourism in China, Europe and the US (and other countries) and the shuttering of sectors in major markets like Europe and the United States (e.g., restaurants and bars, sporting events, entertainment facilities (theme parks, movies, theater, etc.). In a March 9 statement from UNCTAD, concerns about reduced global growth (but still positive) put the likely cost of COVID-19 at $1 trillion with a worst case of $2 trillion. https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2300.

A mid-term update to the OECD’s economic forecast released in early March revised estimated global growth down from 2.9% to 2.5% and if widespread problems in Asia, Europe and the United States, a decline to a growth rate of just 1.5% due to COVID 19. But the interim projections had the EU and the US still with some GDP growth in 2020. 2 March 2020, OECD Interim Economic Assessment, Coronavirus – The World Economy at Risk, https://www.oecd.org/economic-outlook/.

A more recent estimate by Goldman Sach’s predicts an extraordinary 2nd quarter 2020 contraction in the U.S. GDP of more than 24% and a full year 2020 contraction in GDP of 3.8%. See, e.g., Markets Insider, “Goldman Sachs now says US GDP will shrink 24% next quarter amid the coronavirus pandemic – which would be 2.5 times bigger than any decline in history,” March 20, 2020, , https://markets.businessinsider.com/news/stocks/us-gdp-drop-record-2q-amid-coronavirus-recession-goldman-sachs-2020-3-1029018308.

Governments are taking aggressive steps to try to address the potential economic damage from their efforts to slow the spread of the coronavirus. The U.S. Congress has passed one piece of legislation last week and will likely pass a second where the collective costs may exceed $2 trillion as Congress and the Administration try to deal with the challenge to millions of Americans suddenly unemployed, to the collapse of many small businesses and the challenges to major industries like the airline industry.

Similarly, the European Union is looking at actions that would involve hundreds of billions of Euros to address many of the same challenges.

With the collapsing of demand in major developed economies in Europe and the U.S. while these extraordinary measures restricting movement are in place, global trade has been and will continue to be significantly impacted. Articles indicate that China’s exports in January and February were reduced by 17.2% from prior year levels due in large part to COVID-19 (imports into China were down 4%) with spillover effects to many other countries who use Chinese inputs for further manufactured goods. See, e.g., Bloombergs, China’s Exports Slump As Coronavirus Forces Shutdown, March 6, 2020, https://www.bloomberg.com/news/articles/2020-03-07/china-s-jan-feb-exports-fall-17-2-y-y-in-dollars-est-16-2. While China has embarked on efforts to spur economic growth and growth in exports now that the number of cases seems to be under control in China, the rebound in China’s trade will certainly be slowed by the challenges being experienced in other major markets, particularly in the EU and the United States.

While G-7 leaders have indicated the importance of keeping trade flowing and many restrictions specifically exclude coverage of legitimate trade (e.g., US-Canada and US-Mexico recent agreements on restricting cross-border movements), there is little doubt that 2020 will be a challenging year for global trade whether the country engaged in trade is experiencing serious challenges from coronavirus or not. See, e.g., G7 leaders’ statement on COVID-19, https://www.consilium.europa.eu/en/press/press-releases/2020/03/16/g7-leaders-statement-on-covid-19/ WTO DG welcomes G&7 leaders’ statement on COVID-19, https://www.wto.org/english/news_e/news20_e/dgra_17mar20_e.htm.

Still, any efforts of major trading nations to support the global trading system and limit restrictions as possible in these extraordinary circumstances is important, as are efforts of business associations to collaborate to address challenges to business operations from the virus.

Because past outbreaks appear to be poor examples of either the severity of the problems being faced by a number of countries or the length of time disruption will occur before economies hard hit can start to rebound, an air of uncertainty of unique dimensions is likely to continue to overhang global markets for a number of months and potentially longer. The best that may be possible in the global trade field is a substantial slump in traffic without major long-term barriers being introduced.

Here’s hoping that the “invisible enemy” that COVID-19 has been called by some proves addressable in the near term. Billions of people are watching and attempting to cope with lives often seriously disrupted. Helping the people of the world survive the health challenges posed by COVID-19 is obviously job one for governments around the world confronting rapidly increasing numbers of confirmed cases. Trade can assist in some important ways during such a crisis. Unfortunately, trade actions can be used in times of crisis to promote beggar-thy-neighbor actions which can make dependence on global supply chains and foreign sources of key products politically untenable. We are seeing both sides of how trade is perceived playing out in countries at the present time.