export restraints

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.