Month: April 2020

The first phase of the COVID-19 pandemic brought a new wave of trade controls, as countries imposed new barriers against trade in vital supplies such as masks and ventilators.  Now as the COVID-19 pandemic enters its next phase – as the disease recedes in some populations, and attacks others with new ferocity – a simple but critical question has come into focus:  do trade barriers make sense in a pandemic?

One striking aspect of the pandemic has been the global supply chain needed for supplies essential to fight the virus.  In an April 2020 report, the World Trade Organization highlighted the global sources for medical supplies, and the World Health Organization and other international organizations have stressed the need for international cooperation in fighting the COVID-19 pandemic.

Concerns over new protectionism in the United States arose earlier this year, when the Trump administration signaled that the United States might withdraw from the WTO Government Procurement Agreement (GPA) in response to a GAO study which suggested that European exporters enjoy lop-sided access to the federal procurement market.  Lucian Cernat and Zornitsa Kutlina-Dimitrova, trade economists at the European Commission, have responded that the U.S.-EU trade balance in procurement, if read broadly, is actually much more favorable to the United States. 

Robert Anderson (previously at the WTO) has pointed out that leaving the GPA could do permanent damage to the postwar trade regime in procurement, and Jean Heilman Grier (a former staffer at the Office of the U.S. Trade Representative who has written extensively on the GPA) has argued that leaving the GPA could severely disadvantage the United States in future trade negotiations.  [Editor’s note: Robert Anderson’s assessment of the flexibilities already available to member parties in times of crisis is available here:  Keeping markets open while ensuring due flexibility for governments in a time of economic and public health crisis: the role of the WTO Agreement on Government Procurement (GPA).] The U.S. business community (including the National Foreign Trade Council) has also lodged strong objections to leaving the GPA. Perhaps as a result of the many voices of opposition, the Trump administration’s initiative to leave the GPA has quieted, at least for now.

Another potential Trump administration initiative would impose new trade controls to force pharmaceutical companies to bring their production to the United States.  This initiative, long pressed by senior White House trade advisor Peter Navarro, appears to have faded as well.

The Trump administration instead took a focused approach to trade controls, when on April 10, 2020 the Federal Emergency Management Agency imposed export controls under the Defense Production Act on personal protection equipment, including certain masks and gloves.  At the same time, companies such as 3M were being savaged by President Trump for shipping emergency supplies abroad, even when (as 3M made clear) those shipments might be critical to other countries’ efforts to fight the pandemic.    

But even the Trump administration’s most aggressive export controls, such as those aimed at Iran, Cuba, Venezuela and other sanctioned nations, will not necessarily block life-saving supplies.  As Tom McSorley and his colleagues have pointed out, exceptions built into the U.S. export regime will still allow humanitarian supplies to reach Iran and other nations under U.S. sanctions.  The FEMA ban on exports of PPE also allows for exceptions – under FEMA’s approval – for humanitarian purposes, Tom McSorley and his colleagues have noted. [Editor’s update: FEMA’s exceptions to the export ban — including a blanket exception for shipments to Canada and Mexico — are published in draft form here.]

Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on vital items in short supply, from N95 masks to bleach. In normal times, the U.S. General Services Administration, which runs “schedule” contracts used by federal agencies for tens of billions of dollars in annual sales, complies with the Trade Agreements Act (TAA) by banning supplies from countries that have not entered into free trade agreements with the United States (“non-TAA” countries).  Because of acute shortages in fighting the pandemic, however, GSA has temporarily lifted that ban for certain supplies.  [Editor’s note: Jean Grier’s summary of this development is at Perspectives on Trade:  ‘US Temporarily Lifts Procurement Ban’] The Trump administration’s abrupt volte face suggests that trade controls can raise dangerous barriers in times of crisis.

Even more striking was the Trump administration’s decision to waive certain import controls – long the heart of Trump’s “Buy American” rhetoric – on federal procurements of vital items in short supply

U.S. trade controls in the pandemic are part of a broader trend around the world, as nations try to reshape trade flows to husband supplies needed to address the COVID-19 disease.  Those trade controls, which Simon Evenett of the University of St. Gallen calls “sickening-thy-neighbor” measures, raise serious humanitarian and political questions now that some countries no longer need equipment that is desperately sought in other nations.  With the pandemic receding, New York will now share ventilators it no longer needs with Maryland and Ohio; should the United States do the same for Senegal, or for new hotspots such as Sweden?  And what role should international institutions, such as the WTO, the World Bank and the OECD, play in facilitating international cooperation rather than trade barriers – global cooperation, as Laurence Folliot Lalliot has argued, that will be needed to save lives. (An update: EU Commissioner Phil Hogan on April 16, 2020 called for a temporary international ban on tariffs for vitally needed COVID-19 supplies, and made clear that European Union cannot “on-shore” its manufacturing in the long term — it will continue to rely on an international supply chain for key medical supplies.)

Solving that puzzle – weighing protectionism in the pandemic – may require a new set of policy metrics.  Zornitsa Kutlina-Dimitrova of the European Commission has argued that trade restraints make little sense when weighed against the secondary economic effects (e.g., the industrial atrophy, the isolation from innovation) that trade controls cause.  Her research bears special attention now, when human lives – not just dollars – weigh in the balance.

Editor’s note:  Join a free GW Law webinar on Tuesday, April 21, 2020 at 9:00 ET/14:00 UK/15:00 CET/21:00 CST.  Simon Evenett, Robert Anderson, Jean Heilman Grier, Tom McSorley and Zornitsa Kutlina-Dimitrova (invited) will convene before a worldwide audience to discuss “Protectionism in the Pandemic.”  The program will be moderated by Laurence Folliot Lalliot, Vanessa Sciarra of the NFTC and Christopher Yukins.  Program information and registration.