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Hello from Brussels. Last week’s big European Council meeting on responses to the pandemic didn’t produce anything spectacular, as we thought it wouldn’t, and so the great EU coronavirus policy circus moves on to whatever the next underwhelming performance will be. At least the EU has managed to revise its justly controversial export restriction regime on protective gear to make it a bit narrower and more transparent.
Today’s main piece is on what we can learn from the global food crisis of 2007-08 in dealing with the trade aspects of coronavirus. Charted Waters looks at the fall in global trade, while in Tit-for-Tat Georgina Wright, senior researcher on the Brexit team at the Institute for Government, joins us to answer three blunt questions.
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Masks and ventilators, glorious masks and ventilators
Last week we looked at how the threat to food supply has become an issue of its own in the coronavirus pandemic. A bunch of countries signed a (non-binding) deal to refrain from export restrictions in case panicked reactions set off a price-hoarding spiral. Good for them, we guess, though let’s see how well it holds up if food shortages really start.
Food scarcity isn’t just a subject in itself but an exemplar. We’ve said before that trade problems in the pandemic look a lot more like the supply-focused food crisis of 2007-08 than they do the demand-focused downturns of the global financial meltdown that followed. Any lessons to be learned about what governments did during the food crisis and after?
True enough, there were genuine supply problems by 2007 because of Australian droughts and higher oil prices increasing costs in agriculture. But export bans by some of the big food producers drove prices higher. Some of these were clearly unnecessary. Despite ample global stocks of rice, for example, India contrived to set off a worldwide spiral in rice prices by banning non-basmati exports in 2007, triggering panicked reactions elsewhere.
India set off a worldwide spiral in rice prices by banning non-basmati exports in 2007 © Jayanta Shaw/Reuters
Were lessons learned within the sector? Yes and no. The good stuff was recognising the role of lack of information in encouraging unnecessary restrictions. The subsequently created Agricultural Market Information System (Amis) keeps data on current and prospective food global supplies.
The less impressive outcomes unfortunately but unsurprisingly again involve India, which rarely misses a chance to turn a crisis into fresh protectionism. In this case it increased expensive and inefficient market-distorting agricultural subsidies, citing the need to increase government stocks of food to cope with a potential renewed shortage. Its rallying of fierce opposition to some (fairly mild and flexible) rules to govern public stockholdings managed to overshadow an entire WTO ministerial in 2013, and the issue has still not been properly addressed.
The challenges of food crises and pandemics aren’t entirely comparable. The good news for the latter is that the supply response ought to be a lot faster for PPE and even ventilators than for grain, as the former don’t have to be planted several months ahead. The less good news is that regulatory issues are worse with a pandemic. Rice and wheat consignments don’t commonly get rejected for failing to meet local standards.
So here’s a non-exhaustive list of lessons. First, transparency in purchases and stocks is vital. The fog of uncertainty in which global procurement of PPE is taking place has led to zero-sum games of hoarding and sharp practice.
Second, this is a difficult one, but any agreed disciplines on export restrictions will be helpful. To that end, importing countries can do their bit with a reciprocal agreement not to raise tariffs, thus guaranteeing exporters market access — as suggested here by two of our favourite trade profs, Alan Winters and Simon Evenett.
Third, stockpiling of PPE and ventilators is clearly and rightly a feature of pandemic preparedness. But it’s not a good idea for governments to start pulling an India, allowing justifiable crisis preparation to become permanent distortions to production and trade. As Big Phil Hogan told us last week, large-scale public intervention should be limited to crisis-related goods, not become an excuse for general manufacturing protectionism.
Fourth, global regulations need to be sorted out in goods like PPE to facilitate trade. We can’t leave this to the slow process of disseminating regulations through market forces by the de facto Brussels Effect or similar. Fifth, relatedly, we need an understanding imminently on how any coronavirus vaccine will be produced and distributed, and who gets paid for it. The thought of going through this procurement hell again only with the US pharmaceutical industry and IPR involved is horrendous.
Avoiding shortages and panics around essential equipment requires co-ordination. Without some mechanisms to encourage it, co-ordination is a public good which will be undersupplied. The global food crisis gives us some idea of what to do and not do. And let’s keep an eye out for governments drawing the wrong conclusions as well as the right ones, and using the crisis as an excuse for introducing all sorts of distortion that will make the problem worse.
Charted waters
Global trade fell at the fastest pace since the financial crisis in February as coronavirus hit Asia, in an early indication of the further deterioration in goods volumes that economists expect as the virus spreads around the world.
The volume of global trade in goods dropped 2.6 per cent in February compared with the same month last year, according to a widely watched world trade monitor published by the Netherlands Bureau for Economic Policy Analysis.
Global trade volumes had already been slowing as a result of last year’s trade war between the US and China.
Tit-for-tat
Georgina Wright, senior researcher on the Brexit team at the Institute for Government, joins us to answer three blunt questions
Is an extension for the UK/EU treaty inevitable in your view despite what the government says? Why do you think they’re so keen to insist it won’t be delayed?
An extension is possible but by no means inevitable. The intention on both sides has always been to reach a deal by the end of the year and they are due to take stock of negotiations and what progress has been made in June. The question of extension is hugely divisive in the UK. Some think it would be sensible to give the UK and EU more time to negotiate, especially given that so much attention in government and the EU is consumed by Covid-19. But there are others who think an extension would simply serve to delay a decision, not help to make one: if the UK and EU cannot agree on the very basis of a future partnership now, what difference would a couple of additional months make? So a lot will depend on what progress is made in the next two rounds of negotiations in May and June. I suspect the government will continue to rule out any extension until then.
If they do push ahead with the deadline, what’s the most likely outcome in terms of the kind of deal we might see at the end of the year, realistically?
The million dollar question. Trade negotiations are always tricky and you’d expect both sides to be miles apart at this stage of the negotiations. On Friday, the EU and the UK reiterated that a deal was possible — but that it would require compromise. And there are some serious obstacles to overcome — both in terms of process and substance. The UK and EU are at odds over fisheries and disagree on how to manage regulatory divergence over time. The UK feels the EU is making unreasonable demands on the UK which it has not asked of other trading partners. Meanwhile, the EU has accused the UK of slowing down talks by not tabling all its draft negotiating texts. Compromise will be necessary, even for a basic UK-EU deal in goods which covers some aspects of services. A number of things could still go wrong so both sides would be wise to continue with their no-deal preparations.
Is the tension over Covid 19 harming the solidarity of the EU or will it eventually bring greater unity, in your opinion?
A lot will depend on how the EU — both institutions and member states — chooses to weather the crisis. There are things the EU can do, and is doing, to help assist member states — including recovery packages, co-ordinating exit strategies and providing scientific help and advice. In negotiations with third parties (think Brexit for example), the EU knows that its unity is its strength — and that by acting as one bloc, member states are more likely to get the outcome they want. But it’s often the opposite when it comes to internal discussions on money, EU instruments and delegating decision-making to the EU level. You are either seen as winning or losing the argument — but even then, the EU has always managed to piece together a response. The key now is to keep a level head and ensure that divisions and tensions do not bleed into other EU negotiations, like the MFF (multiannual financial framework). Covid-19 will also force longer-term questions like what the EU can do differently if and when the next pandemic hits.
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Source: Economy - ft.com
