Global co-operation on export restrictions is needed

Hello from Brussels. We’ve just been told here that the Belgian coronavirus lockdown restrictions will last at least another eight weeks. It doesn’t sound like much fun, but they’ve been imposed and administered remarkably efficiently and quickly for a country that didn’t have a government for nearly a year until last Thursday.

Today’s main piece is on how a global campaign to keep the trading system open to help combat the virus remains conspicuously, one might say ostentatiously, absent. Today’s Tit for tat is with Beatrice Kilroy-Nolan, partner at Flint Global, while our chart of the day looks at US imports of ventilators.

Whatever it takes? Whatever

We’ve had about a week now of the major economic powers belatedly recognising coronavirus as a global public health and economic emergency. Individually there have been some dramatic steps in monetary and fiscal policy, recalling the global financial crisis (aka GFC) of 2008. In particular the Fed has reactivated the dollar swap lines that didn’t quite get their due credit in saving the world back then.

But in trade? Still nothing impressive, sorry. Even the most eloquent optimists for global co-operation are gloomy. Export curbs on medical equipment have proliferated. The EU’s idea of relaxing its controversial export restrictions involve inviting the poor and oppressed nations of Switzerland, Norway, Iceland and Liechtenstein inside the charmed circle. Some countries have cut import tariffs on pharmaceuticals and medical devices — Brazil, for example, a relatively trade-friendly emerging market. But they are acting mainly in their own interests to satisfy domestic demand, not as part of a global effort.

Attempts to rally support for a multilateral or plurilateral campaign to eliminate export restrictions and hold or cut import tariffs have been scattered. The Asia-Pacific Economic Cooperation grouping of 21 economies would be a logical forum. Traditionally it’s one of the more liberal-minded of the big economic groupings, at least as regards trade in goods.

New Zealand, a country with a history of striking out and forming alliances in trade policy with larger countries, will chair Apec next year. New Zealand just signed an agreement with fellow Apec member Singapore to refrain from new tariffs and export controls, and to remove restrictions on trade in essential goods including medicines. Wellington is trying to build the deal into a broad alliance of like-minded countries. But as for making the pledge the basis of an Apec agreement, no grouping containing China and the US is likely to agree on much.

Comparisons with the GFC are not comforting. Catastrophic though it seemed at the time, the political calculus for governments back then was different and much less existential than for coronavirus. It was one thing, as in 2008, to let domestic industries get hit by competition during a general demand shock. It is quite another now to have people die in their thousands by failing to keep life-saving equipment inside the country.

The standard view of self-congratulatory bureaucrats is that, in 2008, protectionism was constrained by a pledge from the G20 of leading countries to keep trade flowing. Saudi Arabia, which is currently chairing that grouping, wants to hold an extraordinary leaders’ teleconference this week. Veterans of the GFC are urging the G20 to take a leading role. But the full-on diplomatic fight between the US and China is likely to render it impotent as a unifying force. 

The G20 is being encouraged to take a leading role in efforts to counter the coronavirus fallout but Sino-US tensions could render the group impotent © The Asahi Shimbun/Getty

In any case, for our part we’re sceptical the G20 pledge made much difference during the GFC. For a start, as the Global Trade Alert monitoring service has pointed out, there was a good amount of subtle protectionism via regulation and other routes.

Second, the constraints actually cited in most tussles over protectionism, such as the debates over “Buy America” procurement laws in the US, were the hard rules of the World Trade Organization and preferential trade agreements (PTAs). The squidgy unenforceable aspirations of the G20 pledge didn’t get much of an airing. 

Unfortunately even those disciplines aren’t much use this time. WTO rules have big loopholes for countries imposing export bans to protect human life. There is a WTO zero-tariff agreement for pharmaceuticals, but it has limited coverage and a complicated registration process for new drugs.

Unlike during the GFC, when the hyperactive then WTO director-general Pascal Lamy was out warning about protectionism on a near-hourly basis, the body has been notably quiet. Mr Lamy’s successor as DG, Roberto Azevêdo, is instinctively cautious. He’s acutely aware of the potential backlash from delivering lectures on trade openness to countries struggling to get enough face masks for their doctors. 

Sorry we don’t have anything happier to report, but things don’t look good for co-operation to keep the trading system open. The most promising solution is that, as production of medical equipment ramps up, the export restrictions in that sector will become less of an issue. Until then, we’d better wish the Kiwis luck with their coalition-building and pray that the trading system doesn’t fall apart any more.

Charted waters

US president Donald Trump has been coming under pressure to force companies to produce critical supplies and equipment for the coronavirus battle by using the Defense Production Act, as hospitals warn that protective gear for health workers is running low. US imports of ventilators were already on the rise at the start of this year. 

Tit for tat

Beatrice Kilroy-Nolan, partner at Flint Global, says a slowdown in global trade is inevitable

Beatrice Kilroy-Nolan, a partner at Flint Global, joins us to answer three blunt questions

The current situation has seen a huge slowdown in global trade and some concerns over supply chains. What needs to happen for trade to continue ticking over — what should best practice be right now?

A slowdown is sadly inevitable. But temporary measures to control exports of critical medical supplies have soured the picture further. To decry such controls as protectionism is too purist; trade policy does not take place in a vacuum. Governments have a duty to their citizens. Even so, they send a poor signal at a terrible moment, and against a backdrop of a collapsing global consensus on free and fair trade. Plus, we are really only at the start of this crisis; our response needs to evolve from the tactical to the strategic. 

But courage and strategy is hard on your own, when you are fighting to keep your head above the water. New Zealand and Singapore are in a different position to the EU but they have shown how we could try to do things differently. Now is the time for the G7 and G20 to take up the baton and fight back with leadership and co-ordination.

UK prime minister Boris Johnson is so far not being drawn on whether the Brexit transition deadline at the end of the year will have to be delayed: why is that? How might the situation affect attitudes to trade policy and negotiations in the UK once they are able to start up again?

The practical problems facing EU-UK talks and business preparedness and resilience thanks to Covid-19 are self-evident. But an extension isn’t just about practicalities; it is deeply political. The issue also need not be forced for another three months. A lot can and will change in that time. Meanwhile, the Covid-19 crisis rightly requires government attention every minute for now.

As for attitudes, we in Britain are still learning about the politics of trade. Now we are also struggling to come to terms with the strains that Covid-19 will place on supply and demand. In some ways our horizons are narrowing as we focus on the national effort, but the coming months will also underline the importance of global supply chains and movement of workers, which make our way of life, even life itself, possible. Covid-19 will undoubtedly provide a huge jolt to us all, but unless it unravels the deep Brexit dividing lines, many may just draw those lessons that best suit their viewpoint. 

What’s the long-term prognosis of the current crisis: will we see a new, different type of globalisation? What can we learn from this?

Globalisation was under siege even before Covid-19, thanks to concerns over fairness and, increasingly, the impact it has on climate change. To add to this, the public and politicians may take note that having manufacturers on your shores really matters, and that cross-border supply chains can prove fragile in a crisis. As a consequence, governments may in future choose to prioritise the resilience of domestic supplies and production over the benefits of open borders. And yet, trade and co-operation often go hand in hand; indeed, both will be important for our recovery, and for tackling future global challenges. We will need a concerted and co-ordinated effort to keep them alive through this pandemic.

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