Pan(dem)ic policies: what WTO can do

De-globalization. Onshoring. These have become two of the new buzzwords for some economic media stars in promoting policies that respond to the COVID-19 crisis. Not in Geneva circles. Here such ideas are mad, bad and dangerous to sow. But when the pandemic struck early this year, governments were naturally tempted to turn inward through export restrictions and localize most production at whatever cost. They were wrong, as anyone tuned into Geneva internationalism will tell you. Peter Hulm reports.
WTO panel
The WTO webinar panel

Export restrictions really provide a false sense of security," says Anabel Gonzales, Senior Fellow at the Peterson Institute for International Economics. "They raise prices, they discourage investment and they invite retaliation. They are nothing but a lose-lose proposition."

Vaccine nationalism

Currently, the international world faces another challenge related to COVID-19. Gonzales sounded the alarm at an international webinar organized on 10 December 2020 to suggest what to do before the next pan(dem)ic: "The tragedy of vaccine nationalism must be avoided at all costs," she said, "with equal distribution guaranteed across all countries." The 75-minute session is now available on YouTube (LINK).

A petition signed by over 900,000 people was delivered online to the Geneva-based World Trade Organization (WTO) the day before urging all governments, including WTO members and pharmaceutical companies, to "ensure access to lifesaving COVID-19 vaccines, treatments and equipment for everyone in the world".

The Council for Trade Related Intellectual Property Rights (TRIPS) was meeting in Geneva on 10 December. WTO members are in discussion (still) on a proposal to waive obligations in the TRIPS Agreement in relation to the prevention, containment or treatment of COVID-19. WTO has admitted: "Considerable differences remain between members over this proposal" (LINK).

Or, as India Today's website declares: "it's rich vs. poor" (LINK). India and South Africa are co-sponsors of the proposal. "Most developing countries are in support of the proposal but rich and developed countries, such as the European Union nations, the US and Canada oppose it," the site says.

Resilience and rebound

world merchandise trade graph
World merchandise trade

 

In the meantime, WTO's latest figures show "signs of a rebound" back from the national decoupling from international trade in the first months of COVID-19. "The WTO now forecasts a 9.2% decline in the volume of world merchandise trade for 2020, followed by a 7.2% rise in 2021," it said on Friday, 11 December. "Current data suggests a projected decline for the current year that is less severe than the 12.9% drop foreseen under the more optimistic of two scenarios outlined in the WTO's April trade forecast" (LINK).

The previous estimate for 2021 was 21% growth, and GDP (gross domestic product, a standard gauge of economic health) "fell more than expected in the first half of 2020," said WTO, which downgraded its earlier estimate of a 2.5% decline to -4.8%. "Global merchandise trade recorded its sharpest ever one-period decline since 2005 in the second quarter, falling 14.3% compared to the previous period, but the impact differed strongly across regions.

Willy Afaro of WTOThe steepest declines were in Europe and North America, where exports fell 24.5% and 21.8%, respectively. By comparison, Asian exports were relatively unaffected, dropping just 6.1%. During the same period imports were down 14.5% in North America and 19.3% in Europe but just 7.1% in Asia."

But WTO also noted indications of unexpected resilience, particularly in Asia. "The trade decline in Asia of 4.5% for exports and 4.4% for imports in 2020 will be smaller than in other regions," it noted.

regional results
Regional results for merchandise trade

 

Risks remain. But resilience and rebound were also the message from the WTO webinar.

WTO's new trade barometer suggests: "World merchandise trade appears to have rebounded strongly after plummeting in the midst of the COVID-19 pandemic. … A sharp rise in the barometer index was driven by a surge in export orders."

The barometer has a current reading of 100.7 for goods – "a dramatic improvement from the 84.5 recorded last August. All of the barometer's component indices were rising in the latest months."

World goods trade barometer
services trade barometer
Services trade at the lowest level since the barometer's September 2019 launch

The services trade, as you might expect, was harder hit. "But the latest reading from the WTO Services Trade Barometer also shows modest gains in some key sectors, suggesting a degree of resilience in the face of the pandemic" (LINK).

world goods trade barometer climbing back

Listening to Thailand

Thai ambassadorWebinar viewers had the rare opportunity to hear from a developing country about the impact of COVID-19 and the pan(dem)ic on its economic life. Thailand has gained plaudits for its handling of the health crisis in the midst of political turmoil over the power of its military-backed royalty. This has tended to put its economic performance in the shade, apart from the dramatic shutdown of its international tourist industry.

But in her webinar presentation, Ambassador Sunata Kangvalkuki pointed out that motor vehicles, machinery and equipment,  and electrical goods are major exports for Thailand and these are down 11.6% for the third quarter, as against 8.2% in the second quarter. Its Gross Domestic Product (GDP) has been contracting by 6.7% compared with a 2.7% increase last year.

By contrast, the government has been "relatively successful" in controlling the spread of COVID-19 with only 4,400 cases and 60 deaths.

Restrictions only temporary

Thailand has imposed restrictive measures on exports, but only temporarily, she noted. For one month, at the end of March, it banned the export of eggs, a critical product for Thais. It also blocked exports of surgical face masks for one year, due to end next February. But increased productive capacity has increased supplies. So the government is looking at relaxing the restrictions.

As facilitative measures, the government temporarily exempted tariffs on imports of products for treatment and testing for COVID-19 as well as imports to produce masks. These measures ran out in September but Thailand is committed as a member of ASEAN (the Asian Economic grouping) and other states to collaborate on keeping markets open and encouraging investment.

Best performance since 2012

Webinar moderator Robert Koopman, chief economist of WTO, pointed out that many of the national restrictions on trade in essential goods have already been removed.  Though the argument for restrictions was the fragility of essential supply chains, these proved resilient during the crisis, he commented, and the organization on Friday reported that WTO members and observers introduced the lowest number of "regular" trade-related measures since 2012 (that is, those unrelated to the COVID-19 pandemic).

"Of the 335 COVID-19 trade and trade-related goods measures recorded since the outbreak of the pandemic, 58 per cent were of a trade-facilitating nature and 42 per cent were trade restrictive," WTO reported. "Around 39 per cent of restrictive measures on goods adopted by WTO members and observers in the immediate wake of the pandemic were repealed by mid-October 2020."

Even more significant, over 1,000 support measures put in place up to mid-October, and collectively worth several trillion US dollars, are "greater than than the number and variety of measures witnessed during the 2008-09 global financial crisis," the WTO's Annual Overview observed. The report was presented at a 11 December meeting of the WTO's Trade Policy Review Body (TPRB).

What the EU learned

EC representativeStéphanie Leupold of the European Commission (EC) Trade Strategy Unit agreed at the webinar that keeping trade going in the crisis was a key to recoverys: "Export restrictions were actually having a chilling effect because they do create uncertainty which is the contrary of what the companies needed," she said. "We received many letters urging a stable and predictable environment."

In this situation, the EC established an internal clearing house to increase cooperation on measures, match supply and demand, set up joint procurement schemes and tackle obstacles at the borders. These could also be useful in the future, she said.

"What did we learn? We need to be very clear about what the problem really is before we devise a solution for it." Rather than reshoring, the answer might be perhaps diversifying supplies and furthering international cooperation, "in particular a predictable framework in which production can thrive and the distribution can flow".

Risk assessment: from just in time to just in case

The EC's experience was that risk assessment is mainly for businesses to take care of, "moving from just in time production models to just in case," she added. Meanwhile, the European Union on 23 November put forward a Health and Trade Initiative to other WTO members to underwrite supplies and cooperation in the next crisis (LINK).

McKinsey representativeThe international McKinsey consultancy group has produced a report on risk management from interviews with supply chain executives in many companies. Knut Alicke of McKinsey reported to the webinar that disruptions to business have become more frequent, even before COVID-19. Every four years, companies in the affected regions expect to lose two months of their earnings, he told viewers. "You basically erase 45% of a year's EBIDA (earnings before interest, depreciation and amortization) in a decade, 4.5% in a year," he said.

What made this pan(dem)ic different, compared to the 2011 Fukushima radiation scare or Iceland's 2010 volcanic eruption, for example, was that the damage have been global,.

Roughly half of the companies interviewed said their planning was fine. But companies are still looking to nearshoring supplies and services as an immediate solution, or increasing their inventories (pharmaceutical companies, for example).

"Transparency about trade supplies is a super-important measure," Alicke declared. But in many industries this difficult to apply. The motor industry often has eight layers of companies along its supply chain, he noted. This has made it difficult for the industry to ramp up again after lockdown.

Collaboration is equally important, he argued. "In the pandemic forecasting was impossible" because some companies did well and some did badly.

But in some sectors, companies did well because of digital tools, such as apps to tell manufacturers of the border waiting times for their parts from abroad. One result was that some companies in six months achieved a "digital maturity" that would have otherwise taken them three or four years. "We need to leverage that," he advised.

Why the health crisis did not become a food crisis

FAO representativeAt the international level, the U.N. has at least one example of crisis management it can point to. Boubaker Ben-Belhassen, Director of  the Trades and Markets Division in FAO (the Food and Agriculture Organization), drew some lessons from the success of the AIMS (Agricultural Information Management Standards) platform.

He pointed out that AIMS has 28 participating countries, accounting for 80-90% of global production, and 77%+ of international trade in its four staple foodstuffs: wheat, maize, rice and soybeans.

His first message: focus on key players and precise products.

His second: political support and stakeholder buy-in is essential. This, he said, was largely the result of a French initiative in 2011 when it was heading the G-20 group of major industrial nations. From this he concluded: "It is important to have a championing country."

For a project to succeed information needs to be reliable and globally relevant, he added.

But the FAO official conceded that work on other global value chains could be more challenging, perhaps because of the range, or much larger number of players, or competing interests. "Many factors ensured AIMS got off to a good start," he observed.

Nevertheless, the project was "helping prevent the health crisis from becoming a global food crisis," he said and ended optimistically: "COVID-19 could be a catalyst to increase the transparency of value chains of essential goods."

Improving the WTO system: 5 concrete steps

Within WTO, Willy Afaro of the Trade Policy Review Division, which produces WTO's trade monitoring reports, noted that gathering all the information was currently "very time consuming" and perhaps the organization and its members need better automation tools. Similarly, simply reproducing the results was not all he would like to see WTO do. Members also need to see the impact of trade facilitation measures, particularly those that are more harmful.

Anabel GonzalesAnabel Gonzales even spelled out five concrete steps for WTO members to take.,

1. Build a shared understanding of the role of trade in helping fight the pan(dem)ic. "We know now that trade is not a problem in the crisis but is rather a core element in the solutions."

2. More transparency and monitoring of trade results. "It is about time that the organization moves into a different dimension."

3. Negotiations on a trade and health agreement.

4. Guarantee equal distribution of vaccines to all countries.

5. Institutional reform to prepare for future crises, "with a particular view,  I think, to increase time-responsiveness and high political engagement".

Practical, mitigating solutions, and a complaint

trade projections
WTO optimistic and pessimistic trade projections

Koopman commented that the pan(dem)ic had produced a range of new solutions to social issues: remote working, finding ways for your children to be educated out of school, takeouts, firms doing more remote servicing of customers, others using 3D printing to produce parts. These were not necessarily long-term solutions but they are "practical, mitigating steps".

Within WTO Secretariat, he observed, the debate on issues such as using artificial intelligence to get real-time data was whether officials should take action themselves or "do we need to wait for members to tell us it's OK?"

One complaint

One final, complaining, comment about the webinar. If everyone was going to read from notes (as they did), why not make the information available online beforehand, so that presentations could be much shorter, more spontaneous, and even more useful for a real dialogue?