12 June 2020

Simon Evenett is Professor of International Trade and Economic Development at the University of St. Gallen, and coordinator of the Global Trade Alert. He is an Associate Fellow of the UKTPO. L. Alan Winters CB is Professor of Economics and Director of the UKTPO.

The COVID-19 pandemic has disrupted trade policy, along with everything else.  As nations scrambled this year to source medical supplies – equipment, drugs and personal protective equipment – 89 governments imposed 154 restrictions on exports. What is much less well known is that 154 reforms easing imports of these goods were implemented by 104 nations too. It took a pandemic for some policymakers to grasp that taxing imported soap makes no sense.

As well as up-ending trade in the medical goods, these policy shifts have the unintended consequence of providing the foundation for a new trade bargain between nations over medical supplies. As a sizeable and reliable exporter of these goods this matters for the UK and comes at the time when British ministers and officials want to showcase an independent trade policy. It is at times like these—when the big beasts of the world trading system are at loggerheads—that, traditionally, the free trading so-called middle powers lay the groundwork for the next trade deals.

Viable trade deals must fix problems

Export curbs have a lousy track-record as they do little to boost domestic production and meet demand surges. Even so, they are often imposed by frightened governments. Worse, they raise questions about security of supply in the minds of importing governments, so that the latter become less keen on liberalising their import regimes and relying on foreign manufacturers. From the perspective of delivering needed medical supplies and saving lives, the outcome is a dog’s breakfast: stunted production incentives in exporters and high cost, inefficient, production in importing nations.

A new trade bargain should link import reforms and restraint on export limits: in return for importing governments agreeing to keep their import restrictions at their current low levels, exporting governments agree to qualify the extent to which they can restrict shipments abroad. This can be achieved via a straightforward, WTO-consistent, time-limited commitment on policies towards the medical products associated with COVID-19 that countries can publicly adopt at any time. If widely adopted, this would enhance the supply of medical kit in time for the next wave of COVID-19 or the next pandemic.

Recently, New Zealand and Singapore, subsequently joined by Australia, Canada and Korea, committed both to import tariff elimination and not to apply export prohibitions or restrictions on a list of essential goods. Eschewing export curbs outright is desirable, but it makes for difficult politics at the moment. Hence we propose a more limited approach: that governments commit themselves for only five years in the first instance and that export restrictions be proportionate, explicitly justified and notified to partners, time-limited, and not reduce the flow of exports to any partner in any month by more than half the customary value.

A key feature of our approach is that it doesn’t involve any long-drawn out negotiation among governments, the kiss of death of so many proposals over the past decade. Instead, governments would sign up to a set of principles. Media scrutiny plus monitoring by international organisations would expose any government that deviates from its commitments. Buyers of medical kit would naturally penalise suppliers from nations whose governments can’t follow through. Later on, this can be codified in a WTO deal, but for the moment let’s secure this early harvest.

Now is the time to strike. Many traditional exporters of medical supplies are coming to the end of the first wave of COVID-19 infection or are experiencing very low rates of new infection. Producers of medical kit are geared up for high production runs and with COVID-19 rampaging across much of the developing world, demand there is very high. Only a few governments that have eliminated import barriers on medical supplies have reversed their reforms. The opportunity, then, is to lock-in better access to foreign markets in return for commitments not to over-react to medical emergencies by imposing ineffective export curbs. Win-win may be an overused cliché but here it is deserved.

When it had an independent trade policy, the U.K.’s trade diplomats were highly regarded. For a while, the mantle of influential mid-sized players shifted to Canada and Japan and then to Australia, among others. New kids on the trade block shouldn’t arrogantly claim leadership but that doesn’t mean they cannot shape debates on the most pressing global problems. With an eye to upcoming G20 meetings, the U.K.’s chairmanship of the G7 next year, as well as the growing interest in these matters in Geneva, the opportunity exists to deliver constructive ideas that burnish the U.K.’s trade policy credentials.

Why should medical equipment exporters agree to constrain their use of export restraints?

Partly because they want to secure markets but partly because they are also importers.

The WTO identifies 92 products that are critical to the COVID response. The extent to which exporters also import these products is striking. If we consider just the top ten exporters of these products in 2018 (treating the products as a group), we see the following:

Out of a total 92 critical COVID-related products
	No. of Products exported	No. of Products imported	No. of Products where imports exceed exports	No. of Products where imports exceed exports by over $25 million
Germany	87	86	22	15
USA	92	90	54	40
Switzerland	86	88	50	20
Ireland	84	89	45	10
Belgium	89	89	43	14
China	87	85	48	39
France	91	90	48	25
Netherlands	89	90	41	13
UK	91	90	52	28
Italy	91	89	65	35

To summarise:

• These exporters account for 73% of world exports of the 92 critical products;
• None of them imports fewer than 85 of the 92 products;
• Six out of ten of them are net importers of more than half of these products.
• All of them have net imports exceeding $25 million in a significant number of these products – approaching half of them for the USA and China.

The conclusion has to be that all the major exporters have at least two reasons to constrain their use of export restrictions. First, they will benefit from persuading importers not to increase their import barriers after the pandemic abates. Second, all of them would see a major benefit from persuading other exporters not to constrain exports because they have significant imports in a significant number of the critical products.

Note

On 10 May, Simon Evenett and L. Alan Winters published an op-ed piece in the Daily Telegraph making the case for a new reciprocal trade agreement to boost available supplies of COVID-critical medical products. This is reproduced here with additional new evidence that even the largest exporters of medical equipment are also significant importers of such goods and hence direct beneficiaries of general constraints on the use of export restrictions on them.

Reference

Evenett, Simon and L Alan Winters (2020) Preparing for a second wave of COVID-19: A trade bargain to secure supplies of medical goods, UKTPO Briefing Paper No. 40, https://blogs.sussex.ac.uk/uktpo/publications/preparing-for-a-second-wave-of-covid-19-a-trade-bargain-to-secure-supplies-of-medical-goods/

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