Typically, Talking Trade focuses on how trade policy can be made better—more efficient, with lowered costs, and better outcomes for consumers and firms. But there are officials all over the world who spend a lot of time thinking of the opposite: how to make trade flow more slowly or stop moving at all.
The COVID 19 pandemic has helped this agenda by severely damaging, dramatically slowing, and even stopping trade completely. This health crisis will, eventually, dissipate. Global and regional trade levels will then pick up. Trade flows will not easily revert to “normal” since the extreme levels of disruption from the pandemic and governmental response policies will leave serious scarring for some time to come.
Firms that had been thriving ventures in 2019 may have collapsed by the end of 2020, while others that were not even involved in cross-border trade of any sort are suddenly important players. The drive towards digital delivery of all kinds of goods and services that became immediately critical during the crisis and the deployment of new technological solutions to a range of issues will continue to accelerate.
The pandemic has also unleashed a new, urgent set of public sector pressures to protect local economies and jobs. Such challenges are not new, but the scale and size of the economic slowdown caused by Covid has exacerbated tensions for officials trying to manage intense domestic demands with broader economic interests.
In the past, the global trade regime helped moderate some of these pressures. Officials could take a wide variety of steps to address immediate local demands. Sectors suddenly overwhelmed with import surges could ask for safeguard relief. Other types of trade remedies have been used for decades. Many developing countries, particularly, have had flexibilities to follow policies like making adjustments to tariff levels and scope to do so.
However, government action was typically held within certain bounds by global commitments. Tariffs, to take one example, could be adjusted but governments typically did not resort to using this tool. When they did, tariff rate increases took place within the space between applied rates and bound rates. In plain English, governments largely stuck to using the legally allowable space for adjustment without trying to exceed their commitments.
Covid has increased the local demand for protection, but renewed challenges to keeping trade lanes open has also come from the deterioration of the global trading system. While governments used to (largely) follow the World Trade Organization (WTO) commitments, constraints on possible actions have been badly eroded heading into the pandemic. The net result is both less willingness on the part of many governments to follow the letter and spirit of global commitments at a time of steadily escalating pressure to ignore rules entirely.
Governments that want to block trade have always used creative means to do so. Classic examples included arguments that certain products needed to be kept out of local markets to protect “delicate local intestines” from foreign foods or to ensure that local citizens never faced a potential threat from products designed for different types of snow.
Now, however, some governments have abandoned the pretense of following the allowable rules and have gone for sweeping changes that cannot be challenged. In particular, of course, “national security” exceptions are increasingly being used to block foreign products and services of all sorts.
As Covid plus a deteriorating global trade regime makes previously unthinkable actions possible, expect more actions to block trade. Some will try for creativity, but others will simply act and dare others to challenge their bad behavior.
It is easier to take such actions, of course, at a time when the global trade dispute system is broken. Governments can continue to file claims against one another at the WTO. Absent a fully functioning system though, the “losing” party can simply sit on the verdict (“send it out into the void”) and make no change to any policy.
Some bad behavior could, in theory, be constrained by a variety of regional or bilateral trade deals that often come with their own dispute settlement mechanisms. Most of these dispute systems have never been used, though, as governments have tended to trust the WTO system to resolve disputes whenever possible. It’s unclear how well these other mechanisms in the majority of trade agreements might fare in tackling tough disputes.
A determined government is never likely to be constrained by the mere presence of a dispute settlement system. The system works only when members are willing to abide by the rules. The global trade problem is not just that the “court” system is not working, but that some of the members in the system don’t even seem interested in participating.
The challenge is not simply driven by the hostility of the current US President, as convenient as many find it to believe. Other governments, ministries or officials in different locations are also unsettled or unsatisfied with the results coming in from the trading regime. Not all are taking active steps at this point to continue to pull down the system or even to block larger segments of trade from taking place. But many are grappling with how—or by how much--to support an increasingly unresponsive set of trading arrangements.
The location and direction of disappointment or disagreement can come from many different places. The ongoing Geneva Trade Week, to take just one example, has been showcasing a wide range of topics of concern and a large set of potential “solutions” to different challenges like sustainability, connectivity, inclusion, or future types and pathways for growth.
Not everyone that expresses concerns automatically resorts to blocking trade, of course. But as the system continues to struggle to deliver results and as the pandemic impact continues to mount internally, officials will be under increasing pressures to respond by limiting the flow of goods, services and investment.
These are challenging times ahead.
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre, Singapore. If you want to help us support improved trade, please contact us now at info@asiantradecentre.org***