scarcity

Shifting Trade Needs During the COVID-19 Pandemic

· April 28, 2020 · COVID-19 · , , , , , , , , , , , , , , , · No Comments

As of April 28, the number of confirmed COVID-19 cases around the world is over three million. The EU/UK and U.S. have dominated the number of cases and number of deaths to the present time after the start of the pandemic in China. The EU and UK have more than one million cases and more than 120,000 deaths. The United States will likely surpass one million cases by the end of April 28th with deaths above 55,000. . Together they accounted for roughly 70% of cases through April 27 and 84% of deaths.

But the rate of growth is expanding in other parts of the world while number of new cases is shrinking in Europe and flatlining in the United States. The data below look at the number of cases on April 27 and the percent growth of new cases measuring a fourteen day period ending on April 27 compared to a fourteen day period ending on April 11. What the table makes clear is that Europe has been going through a period of declining numbers (percentage less than 100%), North America (based on the US) is close to zero growth (though Mexico’s 14 day numbers more than tripled) , while parts of Africa, Central and South America and some countries in Asia are experiencing rapid growth, albeit generally from low levels. China has largely gotten through the first wave and so numbers for both fourteen day periods are quite low even though the ratio is close to 100%.

Country/Area Number of cases April 27 ratio 14 day cases 4-27/4-11

EU27 908,316 59.65%

UK 152,840 123.03%

4 (Switz., Nrwy, Icel, Lich) 38,358 31.70%

United States 965,910 102.89%

Canada 46,884 128.99%

Mexico 14,677 320.31%

Japan 13,385 159.30%

South Korea 10,738 20.68%

Singapore 13,624 942.40%

China 84,199 93.57%

India 27,892 285.06%

Iran 90,481 52.41%

Turkey 110,130 128.65%

Russia 80,949 599.02%

21 African countries 29,479 185.71%

8 South & Central America 146,515 249.48%

World Total 2,914,507 104.44%

Source; European Centre for Disease Prevention and Control, situation update worldwide, as of 27 April 2020 and 11 April 2020.

As the growth in the number of new cases slows in many developed countries while ramping up in other countries, there will be increasing needs for medical supplies (medicines, equipment, personal protective equipment and other supplies) in countries or territories that heretofore have not had large supply needs.

At the same time, needs for some types of equipment may be reduced in countries that have gotten past the worst of the first wave. Ventilators would be a case in point. In the United States, as hard hit areas like New York see lower hospitalization rates, the state has been able to forward some ventilators to other states with growing case loads. Similarly, the United States has moved from a situation of buying ventilators abroad to being able to send ventilators abroad. That ability is presumably increasing as expanded U.S. production of ventilators kicks into higher gear as we get to the end of April.

Countries like China that have largely gotten through the first wave of COVID-19 have moved from being large importers of medical supplies to being able to export significant quantities of various supplies, including personal protective equipment. They have also ramped up production of some medical supplies and so should be able to both handle any internal needs and continue to expand exports to the world.

However, for countries that have gotten into a period of declining new cases or even flat growth, needs for personal protective equipment, disenfectant, testing equipment and supplies will continue to grow as these countries deal with both ongoing needs for hospital care and the significant increase in testing and tracing needed for a safe reopening of countries and the likely change in protective gear needed for citizens freed from stay at home orders.

Prior posts have reviewed efforts by the multilateral organizations like the WHO, IMF, World Bank, FAO, WCO and WTO to facilitate transparency, financial and other needs of the world during the pandemic as well as efforts at coordinated actions by the G20.

Faced with the worst pandemic in more than a century, the world was generally caught flat footed and without adequate supplies to address the needs of individual countries or the world as a whole.

Transparency and efforts to keep markets open are two of the trade focuses of governments and the WTO. However, a health crisis during a time of grossly inadequate medical supplies has resulted in many countries taking at least temporary actions to secure medical supplies needed for domestic demand. This has occurred through export restraints, commandeering domestic production, using laws aimed for national emergencies and other actions which favor the large and wealthy over other parties.

There appears to be little or no international efforts to coordinate expansion of critical supplies or to monitor demand vs. supply availability to maximize utilization of the scarce supplies that are available in areas hardest hit. If in fact, the pandemic is gaining steam in developing and least developed countries, there is an increasing need for coordinated action in supporting these countries in the weeks and months ahead.

In that regard, Deputy Director-General Alan Wolff provided virtual remarks on April 20th to an event hosted by the Center for China and Globalization in Beijing on the role of the WTO in assisting in the response to the COVID-19 pandemic. The link to the presentation is here and the materials off of the WTO webpage are embedded below. https://www.wto.org/english/news_e/news20_e/ddgaw_20apr20_e.htm.

WTO-_-2020-News-items-Speech-DDG-Alan-Wolff-DDG-Wolff_-Policy-coordina

While DDG Wolff recognizes that any action by the WTO is based upon initiatives from Members, he includes a series of “[a]genda items for a WTO COVID 19 Response”. Some of the agenda items have been pursued by individual WTO members as well as being part of an agreement between Singapore and New Zealand. These would include tariff suspensions on relevant medical supplies and enhanced trade facilitation for medical supplies. The WTO membership has already authorized transparency on actions taken, although Members have at best a spotty performance in providing the transparency agreed to.

The proposed agenda includes items that appear to be more aspirational in nature, at least during the current pandemic, including an agreement on codes of conduct on topics such as “guidelines on allocating scarcity”, “an accord on export controls and equivalent measures (including, e.g., pre-emptive purchasing in whatever form)”. Such issues will likely have greater likelihood of success after the pandemic has passed.

Of great interest to me is the last posting under “Codes of conduct, best practices and international understandings resulting in” which is “Coordinated efforts to enhance manufacturing of medical equipment and supplies”. It is possible that there are efforts within the WTO or the OECD or other groups to gather information on current capacities and planned expansions. Such an effort if not currently occurring should be made a priority during the pandemic and going forward. As China’s experience demonstrated (where demand in China for masks exceeded China production by ten-to-one during the peak increase in cases), supply is unlikely to meet demand in individual countries without better coordination amongst countries and without a greater global inventory buffer to address extraordinary demand surges.

The last agenda item proposed by DDG Wolff is the “Formation of a WTO Member Emergency Covid 19 Response Committee (ERC) or Task Force”. One would hope that an ERC could be quickly created within the WTO although many Members have shown reluctance during the pandemic (at least during the time where in-person meetings are not possible) to agree to any substantive decisions, although being open to collect information. It is also unclear how quickly an ERC, if created, would be able to advance proposals of interest to Members. But it could certainly be a group focused on gathering greater information relevant to supplies and demand as well as restrictions and liberalizations.

Finally, DDG Wolff in looking at planning for the future advances the idea of creating a WTO Committee for Policy Planning. “It is necessary to assure that there is dedicated policy planning capacity within the WTO Secretariat and networked with Members, including experts in capitals who would be able to participate remotely.” Such a Committee could hopefully, inter alia, help WTO Members come up with policies and rules that would better prepare the world for any future pandemics. While much of what is required to minimize the effects of future pandemics is not within the WTO’s jurisdiction, there are certainly areas that are. Many of those include the items DDG Wolff has included in his suggested agenda for the WTO in response to COVID-19. Hopefully, if not doable during the pandemic, such agenda items will be addressed aggressively after the pandemic, perhaps through a Committee for Policy Planning.

Conclusion

The current health pandemic is continuing at a high level but with growing infections starting to shift geographical areas of interest. As developing countries and least developed countries become areas of increased cases, the challenges of ensuring adequate medical supplies to those in need will become greater and be complicated by health infrastructure in many countries, financial resources, and continued supply/demand imbalances. The best hope for positive outcomes is greater coordination of activity and expanded financial resources available to those in need. The seemingly largest gap in coordinated activity is in the area of current supply abilities, growth in capacity and shifting demand needs. Hopefully international organizations like the WTO can help fill the gap.

WTO and the challenge of scarcity — are there lessons from COVID-19?

· April 10, 2020 · Uncategorized · , , , , , , · No Comments

The global trading system has built in flexibilities for nations and customs territories to address scarcity or threatened scarcity at home in the trade rules. Specifically, while GATT 1994 Article XI:2 provides for the general elimination of quantitative restrictions on imports or exports, there are exceptions provided in XI:2. The first permits “Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party.” GATT 1994 Art. XI:2(a). There are also general exceptions to WTO obligations contained in GATT 1994 Article XX including measures “necessary to protect human, animal or plant life or health” (Art. XX(b)) although such general exceptions have certain conditions to prevent discrimination in application.

These WTO rules go back to original GATT provisions from 1947/48 and reflect the understandable desire of governments to maintain the ability to look out for their own people in times of crisis particularly to avoid threats from food scarcity or to human health.

Over the last seventy plus years, global trade flows have dramatically expanded in both agricultural and non-agricultural products. Indeed, many countries and customs territories are import dependent on food products. Moreover, with the development of global supply chains for medicines, medical equipment, medical supplies and personal protective gear, few, if any, countries are self-sufficient for medical goods.

The question arises whether in a much more interdependent world, global trade rules need review and modification to deal with actual or perceived shortages of agricultural, medical or other goods.

The 2007-2008 food shortages on critical agricultural products led to dozens of countries imposing export restraints on core products like rice and wheat resulting in expanded shortages, price volatility and social unrest in many countries.

The COVID-19 pandemic has resulted in nearly 70 countries imposing export restraints on certain medical goods and in a number of countries imposing export restraints on agricultural goods in anticipation of potential shortages. The breadth and depth of the pandemic has resulted in a global severe shortage of a wide range of medical products, equipment and protective gear with countries (and within some countries, provinces, states, regions and even individual hospitals and medical facilities) competing against each other for limited supplies, bidding up prices, resulting in price gouging and hording of goods. It has also resulted in efforts by individual countries and companies (whether local or multinational) to ramp up production to meet the surge in demand. Press reports indicate that many smaller countries find themselves shut out of the market for supplies as large countries or groupings (US and EU) lock up available supplies for months going forward.

The two types of shortages are different in type. Food shortages, if real, flow (1) from some form of crop failure and inadequate inventories, (2) from the failure to keep markets open so goods go to markets where there are needs, or (3) from conflicts. That is, the shortage flows from a temporary supply problem. The shortage is not from a sudden upward change in global demand.

Medical pandemics create severe shortages because of the extraordinary growth in demand for medicines, supplies, equipment and personal protective equipment in a very limited time frame. While arguably countries could build up inventories of potentially needed supplies to address any magnitude of surge in demand, few countries effectively do so and long term demand for the products/supplies of interest don’t support massive capacity outside of a pandemic. Supply can be disrupted as it has been in the COVID-19 pandemic through border measures aimed primarily at limiting movement of people potentially infected but affecting the movement of goods as well, through export restraints imposed to ensure some supplies in country, through disruptions of supply chains, and through aggressive purchasing by large and/or rich countries reducing supplies available for other countries. Supply can also be increased through expanded investment (whether permanent or temporary), through diversion of existing manufacturing from other goods to needed goods, or through reducing inventories. Countries, to offset some of the upward pricing pressures, can reduce the cost of supplies by reducing customs duties, by reducing value added taxes or sales taxes on domestic and imported product, by streamlining and greenlaning import entry, by having the central government coordinate purchasing and distribution during the pandemic, by encouraging expanded production and by keeping markets open.

The COVID-19 pandemic has the added dimension that efforts to address the health crisis have resulted in massive unemployment, collapsing GDPs around the world, sharp contraction in global trade and the need to pump huge sums into economies to prevent greater collapse. Such actions by governments to permit economies to rebound in the future both involve much greater state involvement in economies at least temporarily and issues of how WTO rules on subsidies can or should be applied. The WTO, as the US and others have pointed out frequently, is designed for market economies and wasn’t designed to address the consequences of a pandemic of the magnitude of COVID-19. The extraordinary consequences of the current pandemic will challenge WTO members to determine if current rules remain applicable or need modifications.

Possible solutions for food security and for the availability of medical goods

Food security should, in my view, have different solutions in the trade arena than what may be needed for medical pandemics.

For food security, banning export restraints should be theoretically possible if coupled with (1) national, regional or global inventory reserves of key products to address the periodic droughts and other challenges to supply, (2) market access liberalization of the key agricultural products, and (3) rapid resolution if WTO Members violate their commitments. Even though theoretically possible, the global history of famines and the critical role of food security to governments around the world suggests that meaningful change to trade rules to reduce the flexibilities that presently exist to address food shortages is highly unlikely as part of WTO reform.

On medical pandemics, there are theoretically possible steps that countries could take to reduce the personal and economic toll of future pandemics and the damage to global trade flows. Countries historically have done a poor job of investing in research to address future diseases or viruses until a crisis has occurred. Countries could expand R&D efforts before pandemics. Similarly, national, regional, state/province, local inventories of many critical medical goods could be maintained to address pandemic-level needs. But the reality has been that governments, hospitals and medical businesses have generally not invested in the inventory needed for the historically infrequent pandemic level demand. Supply chains can be modified to provide more sources for all inputs versus reliance on suppliers from one or just a few countries. Governments could develop with companies a game plan for where additional capacity could be generated and how quickly if a pandemic arose and update those game plans periodically. Tariffs could be eliminated on all medical goods, supplies, equipment, and personal protective goods. Governments could ensure priority access of imports of such goods that meet international standards. Governments could provide information to the WHO and WTO on capacities of key medical goods on an annual basis to improve the transparency for countries on supplies. Governments could agree to ban export restraints during a pandemic. Governments could authorize international institutions to build regional inventories for access by countries without the financial resources to build inventories on their own.

While only some of the above actions would come within the WTO’s area of competence, it is hard to imagine WTO Members agreeing to the elimination of discretion they currently enjoy for medical emergencies. It is similarly difficult to imagine countries taking actions longer term to address a problem that could be dismissed as a once-in-a-century crisis.

The broader issues flowing from the need for massive government infusions of funds to prevent the global economy from collapsing are certainly important. If not addressed in a way that allows Members to do what they individually believe they need to do in this crisis, the broader issues will further impede forward movement on broad WTO reform.

Challenging times reveal important structural issues for consideration by WTO Members. Let’s hope there is sufficient recognition of the need for addressing the issues to lead to meaningful progress in reforming the WTO. But don’t hold your breath.