Hello from Brussels. The atmosphere here is maybe a bit edgier as the weeks go on, but the Belgian lockdown seems to be holding fairly well. There has been more attention here in the EU institutions on the slide towards autocracy in Hungary than on trade in the past few days. Donald Trump’s U-turns are the subject of today’s Tall Tales, while the main piece is on the difficulties of navigating trade bureaucracy at speed during a crisis. Our chart of the day shows how the oil price collapse is a boon for ship owners.
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Pandemic highlights the tangle of trade rules
If nothing else, the coronavirus pandemic is teaching a lot of people an under-appreciated fact about the global trading system. A lot more of it is about paperwork and regulation and a lot less of it about tariffs than you’d imagine.
If David Ricardo were writing his treatise about comparative advantage today, he wouldn’t blithely assume that English winemakers were able seamlessly to switch to producing cloth while Portuguese textile folks went the other way. He’d have to bury himself in the details of EU regulations that might keep English clothes out of Portugal because they didn’t label the precise fibre content and post-Brexit rules stopping Portuguese wine entering England because it contained a touch too much sulphite.
This is often particularly complex when a subnational or sub-trading bloc entity has regulatory power, or acts as if it has. Let’s return to one of our favourite subjects of the pandemic, the EU’s export restrictions for protective gear. The commission argues that obtaining authorisation to export is based on a clear procedure, with humanitarian assistance being one specific reason for selling the masks and so on abroad.
True in principle, but bureaucratic and opaque in practice. Authorisation to export has to come from the member states, not the commission. They’ve been asked to turn round authorisations in 10 days. But the BDI (the main German business association) argues that not only is that deadline not binding, but only after authorisation can the export processing and transport begin. That part of the process, the BDI says, is slowed down by “increased border and domestic controls, bottlenecks in logistics . . . and customs clearance for import and export transactions”.
Delays of days and weeks during a pandemic could be measured in hundreds or thousands of lives. Nor is transparency compulsory. We don’t know how many member state authorisations have been granted in what size for exports to which countries and for what reasons.
Then there’s the question of safety regulations. Obviously masks and testing kits for clinical use have to meet tough rules. Big consignments of Chinese equipment to the EU have been rejected for this reason, casting doubt on the quality and the sincerity of China’s donation offensive. But meeting regulations takes time and effort and the EU’s regulatory autonomy means it doesn’t habitually accept other countries’ testing regimes.
Member states can ask for temporary derogations from EU regulations to import equipment without the standard “CE” marking. But that can still involve onerous inspections. Roberto Cursano, a partner at the law firm Baker McKenzie in Rome, says that the Italian government has taken a faster route than the standard derogation. It issued a decree two weeks ago that importers can self-certify that masks meet EU standards. The procedure is overseen by Italy’s National Health Institute, the scientific arm of the country’s national health service. It’s unorthodox, but as Cursano told us: “Given the emergency situation and the shortage of masks, the Italian government’s action was most likely the right thing to do.”
Medical workers perform drive-through swabbing tests for coronavirus in Piedmont, northern Italy © AFP via Getty Images
The US is in a worse mess — and one substantially of its own making. In the EU, the commission has at least been trying hard to co-ordinate within its limited powers during the pandemic. In the US, the federal government wields much more power over travel and trade externally through its control of national borders and internally via the interstate commerce clause of the US constitution. But its performance has been woeful.
Two weeks ago Donald Trump declared, for example, that only essential travel was permitted through the US borders with Canada and Mexico. But Amanda DeBusk of the law firm Dechert in Washington DC said that the guidance was initially so weak that federal customs officers on the Canadian border were reportedly simply asking truck drivers to judge whether their own travel was essential or not. The administration had to scramble to issue clarification later.
Into the vacuum of federal action has come a plethora of restrictions by subnational governments. DeBusk said: “Not just states but counties and cities are putting in restrictions on moving goods, often by order rather than by regulation and often without due authority.” To assist clients to move their goods around the US, her firm has to monitor a matrix of restrictions updated daily or even hourly by the National Governors’ Association and try to prevent state and local governments that have exceeded their legal authority restricting travel.
Only when it’s stress-tested by a pandemic do some companies find out just how complex a trading system can be. If Ricardo had seen all this going on, he might well have settled for kicking back in his Portuguese pyjamas with a large glass of English sparkling white, and giving up on comparative advantage as a nice idea but not a very practical one.
Charted waters
Markets are tanking and tankers are riding high. The oil price collapse, triggered by falling global demand and a price war between Russia and Saudi Arabia, is a boon for ship owners. Oil tankers are handy places to store the black stuff in expectation of a price rebound. Read more
Tall Tales of Trade
Here’s an odd one: a tall tale that turned out to be tall for the wrong reasons, with a depressing but unsurprising trade twist.
Until last week Donald Trump insisted that US companies would turn out enough medical equipment to combat coronavirus without having to use the Defense Production Act, which gives the federal government the power to compel them to produce. That turned out to be untrue: the president did an about-turn and ordered General Motors to manufacture ventilators.
But he also admitted he was invoking the act because he was angry with GM for shutting US factories and creating jobs abroad. In other words, he didn’t U-turn because he accepted he was wrong about the DPA but as another episode in his long misguided vendetta against American companies he considers unpatriotic. And, meanwhile, people are dying.
US President Donald Trump performed an about-turn and ordered General Motors to manufacture ventilators © Bloomberg
Don’t miss
The Covid-19 pandemic has strengthened the hand of those who have long opposed economic openness between countries. When a disease emerging from a food market can cause warlike disruption to societies everywhere, the argument that we must cut back on globalisation for the sake of national resilience is tempting. But it is wrong and must be resisted.
Read moreA wave of coronavirus dismissals is breaking over corporate America as companies that just weeks ago had hoped that a short interruption to their operations would let them avoid job cuts prepare for a longer, more severe downturn. Large companies have put hundreds of thousands of staff on unpaid leave this week.
Read moreTrump administration officials and lawmakers from across the American political spectrum are increasingly anxious about the national security implications of sourcing medical supplies from China, as a surge in coronavirus cases across the US has sent demand for drugs and protective gear rocketing.
Read more
Tokyo talk
The best trade stories from the Nikkei Asian Review
Electronics maker Sharp will produce surgical masks at sites in Europe, India and China, to answer the sudden demand caused by coronavirus, in what could become a “long-term, sustainable business”, according to its chairman.
Read moreWith the US, Europe and Japan struggling economically from coronavirus, China’s sharp manufacturing recovery will mean little if there is no one to buy its goods, writes William Pesek in an opinion piece for Nikkei Asian Review.
Read more
Source: Economy - ft.com
