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The COVID-19 pandemic and international trade Contents

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5International response

58.How governments respond to the pandemic collectively will have an important impact on international trade, which is at risk from rising protectionism and movement away from a rules-based trading system. The global response on trade has been led by the G20 and WTO; however, we heard that there has been “a lack of leadership” to date compared with the 2008–09 financial crisis.187 We have seen the unilateral imposition by some governments of export controls on medical goods, pharmaceuticals and agri-food; at the same time, some states have implemented import reforms, such as reduced tariffs on essential goods (as discussed in Chapter 2). The WTO began publicising notifications received from its members (see below), while the Global Trade Alert began tracking measures announced by governments.

59.While the number of interventions recorded were of a similar level to 2019 (the most active year for trade interventions in a decade), export controls were used in greater numbers. We heard that these measures were temporary and, in the case of some export controls, were already being withdrawn.188 However, business representatives were concerned about the potential for further protectionist interventions, such as hardening border controls, domestic stimulus packages and limits on imports for goods; and measures impacting regulation, taxation and data localisation for services.189 Professor Simon Evenett, of the University of St Gallen, told us that the introduction of new subsidy schemes in response to the pandemic were likely to cause longer-term distortion to the global trading system and would be more extensively used in the future.190 He said that this was an issue which had been building up over time, with “under-the-radar subsidies” emerging following the financial crisis, despite commitments not to engage in protectionism.191 Alan Wolff, Deputy Director-General of the WTO, acknowledged that WTO rules on domestic subsidies “are pretty weak”,192 while Marianne Schneider-Petsinger, of Chatham House, said there needed to be more focus on these rules to adapt to Twenty-First Century trade.193

G20

60.Efforts by governments to coordinate responses to the pandemic have, for the most part, taken place through the G20 group of countries. G20 leaders held a virtual summit on 26 March 2020, following the WHO notifying COVID-19 as a pandemic earlier that month. They agreed that the pandemic required a “transparent, robust, coordinated, large-scale and science-based global response” and said they would “do whatever it takes and to use all available policy tools to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability, and strengthen resilience.”194 G20 Trade and Investment Ministers have also met virtually in response to the pandemic. A ministerial statement, issued on 30 March, said that emergency trade measures taken in response to the pandemic “must be targeted, proportionate, transparent, and temporary” and not cause barriers to trade or supply chain disruption.195 Further, it said the implementation of such measures should uphold “the principle of international solidarity, considering the evolving needs of other countries for emergency supplies and humanitarian assistance.”196 The Ministers noted their concern about the likely impact on vulnerable developing and least-developed countries in particular. On 14 May, Ministers met again and endorsed a list of actions drawn up by the Trade and Investment Working Group to alleviate the impact of COVID-19 in the short-term through trade facilitation and transparency; and in the long-term to support the multilateral trading system, build resilience in supply chains, and strengthen investment.197

61.In evidence, the CBI said “the international community is still a long way from launching the kind of coordinated response seen after the 2008 financial crisis.”198 It said the G7 and G20 should be limiting any export restrictions on essential goods, reporting their own restrictions at the WTO and trying to build consensus for reform of the WTO.199 Soumaya Keynes, Trade and Globalisation Editor at the Economist magazine, indicated that these types of measures would also help developing countries respond to the “combination of shocks to their economy and shocks to export demand.”200 Marianne Schneider-Petsinger said that the collective response of the G20 “has focused on pledges and declaring a common purpose” but overall could have been more ambitious.201 Ms Truss told us she would have preferred a more ambitious G20 statement but indicated that, given the “protectionist rhetoric across the world” and different opinions on the issues, it was positive that a statement was agreed.202 She also said the UK had implemented the actions agreed by the Trade and Investment Working Group and said an officials’ working group had been established to monitor progress.203 In written evidence, DIT said G20 Trade Ministers would receive an update on implementation of the actions by all G20 countries in October and the Secretary of State would inform the Committee of the progress made following that meeting.204

World Trade Organization

62.Throughout the pandemic, the Director-General of the WTO, Roberto Azevêdo, has encouraged its members to maintain open and predictable markets, foster a positive business environment and cooperate to achieve a faster recovery.205 In addition to its usual work, the WTO secretariat has taken a three-fold approach to support its members to respond to the pandemic. It has prioritised the production of timely data tracking the extent of the crisis, publishing its Trade Outlook for 2020 in April, with an updated forecast in June; and its Goods and Services Trade Barometers, which aim to provide real-time data on global trade trends.206 It has also published a series of short reports on the impact of the pandemic on various aspects of international trade. WTO agreements seek to promote transparency in trade-related measures and members are required to notify the WTO of any measures taken. The Organization has emphasised the need for transparency throughout the pandemic and established a dedicated webpage to publicise up-to-date trade information and notifications received.207 Furthermore, the secretariat has worked with other multilateral institutions to coordinate responses by these organisations. This included working with the WHO and UN Food and Agriculture Organization to minimise the impact of border restrictions on trade in food; and the World Customs Organization to facilitate trade in essential goods.208

63.In questioning about the WTO response to the pandemic, we heard from Professor Evenett that the WTO secretariat “has been very forthright in articulating why open trade is needed at this time” but it is a comparatively weak international institution.209 This has been evident in the reporting of trade-related measures where Professor Evenett’s Global Trade Alert identified more countries adopting export controls and import reforms than reported by the WTO.210 He reasoned that “the WTO secretariat is in some ways limited by the willingness of member governments to notify them of policy changes, and this may account for the differences in the totals that we find and that they have found.”211 Ambassador Wolff, of the WTO, addressed transparency in his evidence telling us that: “There are a lot of shortcomings in the notification of subsidies. Notification of standards is excellent. Notification of the export restrictions has been pretty good but not perfect.”212 He explained that there was a process of consulting with members to verify data and get permission to report official measures. Peter Ungphakorn, former Senior Information Officer at the WTO, said that while the WTO might not report as many trade measures as projects such as the Global Trade Alert, “there is still quite a high degree of transparency as a result of the secretariat’s own initiative.”213

64.The role of the WTO as a forum for discussion and negotiation during the pandemic and the need for reform were also highlighted in evidence. Marianne Petsinger-Schneider told us that it would be “the natural forum for more collective action”, but this had not occurred due to the pressure the Organization was under on multiple fronts. She indicated that the pandemic might be an opportunity to move forward WTO reform efforts, as the crisis had shown the need for a rules-based international trading system with a properly functioning WTO at its core.214 Peter Ungphakorn said there was a need to distinguish between the WTO secretariat, which supported the work of members, and WTO members themselves. He said that there were constraints on what the WTO could do, based on what members want to do; and there was a lack of understanding of what it meant for the WTO to be “working”.215 He contended that “the [WTO] system in general is, behind the scenes, working quite well but there are obviously problems with negotiations, decision-making and dispute settlement.”216 Ambassador Wolff identified the legislative function (the ability to make rules) as the main aspect in need of reform. He said this would have been a corrective to the issues with the judicial function.217 Further, he indicated that a restoration of the Appellate Body (the Dispute Settlement Mechanism’s appeals body) was not imminent and there was likely to be a long experiment with the interim appeal arbitration arrangement.218 The Secretary of State told us that “the reality is that the WTO is in desperate need of reform”219 and there were instances where WTO rules were not being followed in areas of transparency, forced technology transference and subsidisation using state-owned enterprises.220

UK Government engagement with global forums

65.The UK Government’s international response on trade issues has sought to emphasise the need for continued free, open trade and express support for the WTO. On 28 April, the Secretary of State co-authored a newspaper article with Trade Ministers from Australia, New Zealand and Singapore, arguing that export controls and trade measures on essential goods harm the response to the pandemic and reiterating the G20’s statement that any measures necessary should be “transparent, time-limited and proportionate.”221 In correspondence with the Committee, Ms Truss said she was active in encouraging G20 Trade Ministers to express a commitment to avoid protectionism and was emphasising the need for proportionality and transparency in trade measures when communicating with WTO Members.222 Julian Braithwaite, the UK’s Ambassador to the WTO, has also stressed that the Organization “has a major role to play” in the response to the pandemic as “the world’s leading platform for discussing global trade.”223 Further, he said:

it is the place where the impact on COVID-19 on the global trading system should be discussed, where ideas and solutions should be shared, and were [sic] initiatives to mitigate the global economic crisis to come, launched.224

Ambassador Braithwaite has also called for the process of appointing a new Director-General to be undertaken with a sense of urgency.225

66.We heard from Professor Fiona Smith, of the University of Leeds, that the “UK is showing real leadership” in seeking to keep markets open through the G20 at the WTO.226 She cited rules on agri-food exports as an area where the UK could seek to lead further reform.227 TheCityUK said that the Government had been “encouragingly clear about the need for a coordinated global response”228 and called on it to “continue to build coalitions of countries that favour strengthening the rules-based trading system.”229

Conclusions and recommendations

67.We welcome the UK Government’s engagement with the international response to the pandemic in relation to trade issues. However, we are concerned at the lack of a coordinated plan of action from the wider international community early in the pandemic (in contrast to the situation when the financial crisis broke out in 2008). The Government must act at the international level to try and ensure that any trade-disrupting measures put in place during the pandemic do not become permanent.

68.During the pandemic, the World Trade Organization (WTO) has sought to encourage its members to retain open and predictable markets. Its Secretariat has been a useful source of data publications and information; however, there are constraints on what it can do as a member-led body. The Organization is further hampered by the poor functioning at present of its negotiating and dispute-settlement functions. We recommend that the Government seek to work with World Trade Organization partners and the WTO’s General Council on reform initiatives to revive its negotiating and dispute-settlement functions, to be taken forward once a new Director-General is in place. We recommend the Government advocate for these reforms as a pressing need and report to us at regular intervals on progress made.

Agreement on trade in medical goods

69.During the inquiry, we heard evidence about the potential for a multilateral or plurilateral agreement on medical goods. Since the outbreak of the pandemic, several initiatives have been proposed including New Zealand and Singapore’s Declaration on Trade in Essential Goods, open to all WTO members, which seeks to eliminate tariffs, and import and export measures, on essential goods.230 The UKTPO said the UK should sign and promote the declaration. It maintained that, by doing so, the UK would show a “strong commitment to tariff elimination; prohibition of export restrictions; removal of non-tariff barriers; and trade facilitation in essential goods for combating the COVID-10 [sic], all objectives explicitly espoused by the government.”231 Further, it said that the UK’s support would encourage others to join.232

70.Professor Evenett and L Alan Winters, Professor of Economics and Director of the UKTPO, have also proposed a “trade bargain” on medical goods. Under this proposal, “in return for importing governments agreeing to keep their import restrictions at their current low levels, exporting governments agree to qualify the extent to which they can restrict shipments abroad.”233 This could be achieved through “a straightforward, WTO-consistent, time-limited commitment on policies towards the medical products associated with COVID-19 that countries can publicly adopt at any time.”234 Professor Evenett told us the proposal has been discussed by ambassadors at the WTO and was being considered by the UK Government. He said:

Essentially what I think people are looking for is some way of making something of this desire to open up markets where we probably should never have been taxing imports in the first place and to have an early harvest where we can lock in some of the reforms that we have seen. Maybe this could be a first step towards a plurilateral agreement among countries on medical supplies and medicines, which the European Union and others have been advocating. Professor Winters and my proposal is very much a first step, an early harvest, towards a more elaborate agreement that could be negotiated once the goodwill exists at the WTO to try to do so.235

Furthermore, trade policy journal Borderlex reported that EU Trade Commissioner Phil Hogan was considering “launching a more comprehensive negotiation of a plurilateral agreement” which could include the permanent liberalisation of tariffs on medical equipment.236 The proposal was discussed at an informal meeting of EU Trade Ministers in April and won support from the governments of the Netherlands, Sweden and Denmark. The Dutch Government had circulated a paper calling for an “Essential Health Goods” agreement in advance of the meeting.237 In addition, in June members of the Ottawa Group of countries asked the WTO Secretariat to “advance analysis and consideration in order to identify what steps WTO members could take to facilitate trade in medical supplies” to ensure members have access to medical supplies and are better positioned to deal with future health crises.238

71.The Secretary of State told us that she was “in favour of the principle” of a multilateral agreement on medical goods.239 Ambassador Wolff said it was possible for there to be a tariff-free agreement on medical goods, but WTO members “have to decide that is what they want to do.”240 He indicated that an issue could arise if major members did not wish to pursue an agreement and other members have to decide if they still wanted to go ahead.241 We also heard of the need for caution in approaching the proposals. Soumaya Keynes warned that “there is a slight tension between the idea that the world is about to throw open its borders to trade and the more populist impulses to make sure that medical supply chains are brought back home”, which will need to be resolved (see Chapter 6 for further discussion).242 She was sceptical about an agreement being done in a quick and easy way. Marianne Schneider-Petsinger agreed, saying that she did not see “a huge appetite in the current environment for advancing plurilateral efforts in a time of protectionism.”243

Conclusions and recommendations

72.The emergence of several proposals for initiatives to support trade in medical goods—including plurilateral and multilateral agreements — is an encouraging development. We consider that there is a strong case for such initiatives. We recommend that the Government set out a clear policy position on each of the proposals as a matter of priority. We hope that the Government will use its influence to be a leading voice in seeking international support for such initiatives.

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