Hello from Brussels. Not a great deal to report locally here, except that the slowly phased reduction in the Belgian lockdown has led to DIY stores and garden centres opening, so at least it’s a bit easier to get things done around the house. There’s a European Council meeting this week, amid a steady stream of dire warnings about the future of the EU and the euro, predictably dismissed by European Commission president Ursula von der Leyen.
Today’s main piece is on what kind of global trade deal you might need to stop this sauve qui peut shambles of export restrictions and bidding wars for medical kit happening again (TL; DR: you could probably do it, but not with the current world leaders in charge).
In our Tit for tat, Nick Ashton-Hart, Geneva representative for the Digital Trade Network, answers key questions, while our chart of the day looks at a decline in Chinese food imports to the US.
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The big, big trade deal that might mean ‘never again’
The mad global scramble for personal protective equipment (PPE) and ventilators during the coronavirus crisis causes every sane trade person to ask: how can we ensure “never again”?
Predictably the early running has been made by the New Zealanders and the Singaporeans. The Kiwis in particular (admittedly a small country with not many import-competing industries to protect) are famously fecund in conceiving bright ideas about global trade. Having first put together a pledge for no restrictions on essential goods and particularly medical equipment with a group of like-minded countries including Chile, Australia and Canada, the two are now proposing a plurilateral to do the same.
Jacinda Ardern, prime minister of New Zealand. The country is famously fecund in conceiving bright ideas about global trade © Mark Mitchell – Pool/Getty
The idea seems to be getting some legs. EU trade commissioner Phil Hogan (“Big Phil”, of course, it takes more than a global pandemic to reduce his stature) mentioned a similar idea at an EU ministers’ meeting last week. It strikes us that a plurilateral for medical kit might be akin to the zero-tariff Information Technology Agreement (ITA) on electronics signed in 1996.
That’s fine as far as it goes. But the ITA and similar are designed to facilitate supply chains in peace, not withstand the panic of a global shortage. The main problem during the pandemic hasn’t been straight-out protectionism, unhelpful though tariffs have been. The real damage has come from export restrictions designed to ensure local markets are supplied, which have escalated into a global tit-for-tat, higher prices and that astonishing procurement scramble. Governments have not just in effect apparently seized shipments going through their territory but, in the case of Donald Trump’s administration, entered a procurement battle with their own states. Trump also seems to have tried to corner production in a putative vaccine by poaching a German company.
The trade response is much more like the export bans of the food price crisis of 2007-2008 than 1930s-style import tariff protectionism. A plurilateral on imports isn’t the main event. Tariffs at nil won’t help you much when there’s nothing to buy. The Singapore-New Zealand proposal acknowledges the importance of controlling export bans but Hogan’s address focused on tariffs, perhaps not surprising given the EU’s controversial export restrictions in the crisis.
It takes more than a global pandemic to reduce EU trade commissioner Phil Hogan’s stature © Olivier Matthys/Bloomberg
The Dutch — traditionally the New Zealanders of Europe, though with some really weird wobbles recently — did make the case for a broader deal in a paper to EU ministers we’ve seen. They called for an “essential goods agreement” (under Gatt Article XX (j) if anyone’s taking notes) aiming at an equitable international distribution of crucial health products and no “unjustified” price rises. But that is not, or not yet, a consensus EU position.
In the absence of co-operation, the solution is for every economy — and in extreme every EU member state, if European co-operation can’t be secured — to have its own PPE and ventilator producers. Failing that, a huge government stockpile might do. The problem there, apart from the expense and complication — ventilators contain hundreds of different parts — is that the next pandemic might require different kit, and then what?
The redoubtable Rufus Yerxa, head of the National Foreign Trade Council business organisation and former USTR and World Trade Organization bigwig, has been doing some thinking on this. First up, he says, a comprehensive deal would involve chucking into Lake Geneva the prevailing post-Doha Round view that only narrow sectoral multilateral deals are possible.
Yerxa suggests going further than just disciplines on export restrictions. You might need rules on government procurement to constrain bidding wars and an IP agreement to ensure a cheap global supply of any new vaccines or pharmaceuticals, all possibly buttressed with shared global or regional stockpiles. Institutionally, you’d probably need to join up the WTO with the World Health Organization and possibly the World Intellectual Property Organization. To do the stockpile logistics, it might be helpful to get the military involved.
A tall order? We’d say so. An order so tall it dwarfs even Big Phil. Trust and co-operation in the global system are in incredibly short supply. Governments that can’t agree on appointing judges to the WTO disputes system are hardly about to conclude a multi-faceted global deal to regulate a crisis.
But without some kind of co-ordination, there is likely to be a patchwork of expensive and horribly inefficient national responses, and international tension every time a pandemic breaks out. At the moment, that’s where we’re heading. So, that’s your regular dose of good cheer from Trade Secrets. Have a good week, everyone.
Charted waters
China was the third-largest supplier of agricultural imports to the US in 2018, according to the USTR’s office, with a total of $4.9bn, of which fruit and vegetables accounted for $1.2bn. Fresh vegetables were $160m. US exports of agricultural products to China totalled $9.3bn.
Tit for tat
Nick Ashton-Hart, Geneva representative for the Digital Trade Network, believes the increase in remote working due to Covid-19 is unlikely to be fully reversed when quarantines end
Nick Ashton-Hart, Geneva representative for the Digital Trade Network, joins us to answer three blunt questions
As more people work from home is this likely to weaken the effects of the gravity model of trade?
The gravity model suggests that trade between two countries is greater the closer they are geographically. So far, this model has remained true for millennia — though some experts predicted it would weaken due to digitalisation. I think that it will weaken now for two reasons. The great increase in remote working due to Covid-19 is unlikely to be fully reversed when quarantines end — it has too many benefits. The second reason is probably more important. Business deals are being done via digital conferencing due to travel restrictions. This will go on for some time — and since it is so much cheaper than flying around, the trend to do deals remotely will only grow. Once you take the cost of travel for face-to-face meetings out of the equation, businesses are more likely to do deals based on objective criteria — with distance being less important.
What’s your take on the protectionist response to Covid-essential medical technologies?
It is an understandable, knee-jerk reaction but it is counterproductive. Export restrictions are only half the equation; import restrictions and tariffs are equally bad. There are import barriers on medical equipment in dozens of countries: 78 have tariffs on soap, 15 on protective gear and 23 on disinfectant — and there’s much more. All export or import barriers unrelated to product safety and all tariffs on any medical product essential to Covid-19 interdiction or any part of the supply chain related to them should be dismantled right away. That’s how trade policymakers could make a meaningful contribution to the pandemic response.
Are we seeing companies in supply chains that haven’t embraced the digital revolution losing out, and what should they be doing about this?
Some 49 per cent of humanity is not online, yet more than one-third of global GDP relies upon digitalisation, according to the UN. That will give you the answer. Global supply chains are all digitalised, essentially, so if you are a business that wants to participate in them you have to be online, and if you’re in a country with expensive broadband — like much of the developing world — you’re at a major disadvantage. Globally, the disruption of the pandemic is illustrating how important supply chain resilience is and if you’re digitised your ability to respond in real time to disruption is improved. The post-pandemic recovery will further disrupt existing chains to reconfigure them for greater resilience.
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Tokyo talk
The best trade stories from the Nikkei Asian Review
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Source: Economy - ft.com
