COVID-19: Export bans, trade rules and international cooperation

World Trade Organisation rules are not pandemic proof, and have fallen short of addressing the ongoing disruption to global trade and commerce.

global demand, COVID-19, coronavirus, global institutions, international cooperation, WTO rules, emergency measures, economics of trade, trade, political will, critical shortage

WTO/Flickr

In the aftermath of the COVID-19 crisis, there has been a surge in global demand for medicines, medical supplies and personal protection equipment. Maintaining sufficient stock of foodstuffs to contain inflation and ensure food security has also become a national priority. However, the twin effect of enforced lockdowns and restrictions to international transport, have disrupted global supply chains. Countries are, thus, faced with the prospect of a looming shortfall in essential supplies. As such, several states and trade blocs have enforced export prohibitions and restrictions to stabilise domestic supplies of essential goods, and control their domestic prices.

On 23 April 2020, the World Trade Organisation (WTO) observed that as many as 80 countries have introduced export prohibitions and restrictions to mitigate such critical shortages. Figure 1 below categorises these restrictions by products, such as facemasks, gloves and foodstuffs. To highlight a few examples, in March 2020, the European Union imposed a prior authorisation regime for export of protective equipment, while the Eurasian Economic Union banned exports of certain food items and medical supplies like disinfectants. Similarly, the US, India and the UK imposed export restrictions on products such as protective gear, diagnostic test kits and medicines. Countries like Russia and Kazakhstan, imposed export bans on wheat grain and flour — a move that could hurt import-reliant countries like Bangladesh. Vietnam imposed a similar export quota restriction on rice, but may lift it since domestic supplies have become sufficient.

Figure 1: Countries and customs territory introducing export prohibitions and restrictions due to COVID-19, by categories of products

At this stage, a crucial question is whether these measures are compliant with trade obligations set out under agreements of the World Trade Organisation (WTO). The answer to this would be a cautious yes. Table 1 below looks at rules and exceptions that may allow temporary measures taken in light of COVID-19. However, reading the fine print can lead to differing interpretations on how and when such extraordinary measures can be taken.

It may be argued that a “critical shortage” needs to be assessed before any export ban is put in place. Otherwise, countries — in anticipation of a shortage that may or may not happen — will unjustifiably hoard resources in violation of trade rules.

For instance, “critical shortages” of essential products justify temporary export restrictions. It may be argued that a “critical shortage” needs to be assessed before any export ban is put in place. Otherwise, countries — in anticipation of a shortage that may or may not happen — will unjustifiably hoard resources in violation of trade rules. This is similar to the way members of the general public began to panic buy and hoard products, following the announcement of nationwide lockdowns.

Table 1: WTO rules applicable to export restrictions, in the context of COVID-19

WTO Agreement Applicable rule
General Agreement on Tariffs and Trade 1994 (GATT)

Exception for critical shortages

Article XI bans export prohibitions and restrictions, and obliges member states to eliminate them. However, an exception has been carved out for instituting temporary measures to prevent critical shortages of foodstuffs or other products essential to the member state.

Measures necessary to protect health

Article XX allows prohibition and restriction when such measures are “necessary to protect human … life or health.”

National security

Article XXI enables states to take any action which it considers necessary for the “protection of its essential security interests,” including measures “taken in time of war or other emergency in international relations.”

Agreement on Agriculture

Shortage of foodstuffs

Article 12 allows countries to introduce temporary export prohibitions and restrictions, provided there is a critical shortage of foodstuffs.

However, states must give due consideration to the effects of such measure on importing Members’ food security.

Source: Author’s own

However, is it prudent for countries to wait for a critical shortage to arise before imposing an export ban? This places nations in an unsolvable double bind. The unpredictable nature of the infection coupled with implementation of export bans elsewhere, dictates the need for caution and foresight in ensuring sufficient stockpiles of essential supplies. Further, since such questions have not been brought before the WTO for interpretation and clarification, there is no clarity as to how WTO agreements would apply to pandemics. As to whether countries would have the financial and political appetite to institute disputes before the WTO under these provisions — in the midst of a pandemic, no less — remains to be seen.

Another major problem — attributable to the dynamic nature of the crisis — is the urgency with which export restrictions were implemented, without due regard for adequate notification and publication. Under various WTO commitments, such as a 2012 decision and the Agreement on Trade Facilitation, countries are required to notify the WTO of any new export restrictions that they may impose. To date, out of the 80 countries only 39 have notified such measures. A lack of transparency has not only made it impossible to record and quantify the changes being made to global trade, but has also made it difficult for import-reliant countries to plan and hedge against supply shocks.

As to whether countries would have the financial and political appetite to institute disputes before the WTO under these provisions — in the midst of a pandemic, no less — remains to be seen.

In the short term, it may make sense to impose export restrictions on essential medical supplies and food items to increase their domestic availability at affordable prices. However, economists are concerned that in the long run, these measures will reduce world supply of essential products and harm import-reliant countries; cause losses to exporters; reduce incentive and efficiency of production due to low prices; and promote smuggling and other illegal channels of trade.

The economics of trade is not the factor at play here. The possibility that these measures can induce a long-lasting humanitarian crisis cannot be ignored. Net importers of medicines and protective gear, such as Sub-Saharan countries, will be highly vulnerable to these shocks in the global supply chain. Apart from medical supplies, export restrictions have also extended to food items. Hassan Diab, the Prime Minister of Lebanon, recently highlighted that Lebanon relies on imports of wheat and wheat products for food security. Because of Russia’s decision to suspend wheat exports, it could face a possible food crisis leading to mass starvation and migration.

Export restrictions and prohibitions can also undo strategic alliances and erode confidence in existing partnerships. Members of the European Union, such as France, Germany and the Czech Republic, banned exports of certain types of protective gear — even to fellow member states. The European Commission called for solidarity, and the need to remain “united” during the pandemic. India’s own decision to impose an export ban on Hydroxychloroquine (HCQ) — a drug that could treat COVID19 — was reversed when Trump threatened retaliation against New Delhi. On the other hand, the importance of medical diplomacy by exporting essential supplies to other countries is not lost to either China or India, as they both make efforts towards this end.

The emergency-like situation created by the COVID-19 crisis has also weakened the political will of countries to obey and adhere to international rules.

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