The past few years have given us all a crash course in what trade looks like in times of crisis. Unlike many previous trade-disrupting events, the Covid-19 pandemic affected supply and demand simultaneously and was global. Although early signs suggested it might be short-lived, the consequences remain significant after nearly three years. In some markets in Asia, the disruptive impact remains as strong as ever, while other locations have completely changed policy directions to resume “normal” operations.
There have been at least four key trade-related challenges that have created significant disruptions to supply chains. First, staff were prevented from showing up for their jobs by lockdowns and associated movement limitations at the domestic level. Second, transport snarled, especially held back by the inability of personnel to move across borders or to do so only with lengthy quarantine restrictions. Third, some governments put restrictions in place on export of certain types of goods. Finally, governments began to subsidize segments of the economy in ways not previously considered.
The first challenge clearly had trade implications. Firms of all types struggled to operate with significant restrictions on movement. Many companies spent considerable time getting special permissions into place to allow critical manufacturing and services to remain open. Some locations are still demanding the use of “closed loop” processes to separate workers from general society to limit the spread of the virus among specific business employees.
Even when one portion of a supply chain was allowed to function, other, equally important, elements of the ecosystem may not have been granted similar permissions. The net result was an uneven patchwork of operations.
The inability of transport services of all types to continue to operate across borders created major snarls in ports, airports and land crossings globally. Given the potential for rapid spread of the virus from inbound individuals, governments were understandably reluctant to allow easy movements across borders.
However, unilateral, harsh, or draconian decisions on movement of transport personnel also left key goods undelivered, made services delivery difficult or impossible, and severely complicated the lives of individuals and companies involved in trade. Movement restrictions at the borders, for example, kept vaccines and critical personal protective equipment from being distributed.
Efforts to coordinate responses to border movements floundered in the early stages of the pandemic. Governments were kept busy trying to address domestic spread of the virus and were not interested in figuring out the complex problems of allowing trade-related personnel to move.
Coordination stalled over issues both large and small. For example, governments struggled to figure out what sort of information, captured in what sort of format, using what types of documents, could be exchanged on vaccination status and timing. The speed of the pandemic put deliberative governmental decisionmaking processes to shame.
Some governments responded to the unfolding crisis by blocking shipments, particularly of key medical supplies and equipment.
The impulse to protect domestic citizens in times of crisis is powerful. But it also led some governments to stockpile key goods, often in quantities far in excess of domestic demands, while leaving others with no resources or critical materials at all. As with movement restrictions over borders, governments argued they had little time or attention to devote to challenges beyond their own boundaries.
The global rule system for trade does not do much to address possible export controls. The idea that governments might opt to block exports seems to have figured little in the early designs for the trading regime. Most trade agreements also have relatively little to say on the topic of export restrictions. Yet export controls may be an increasingly common future response to crisis situations.
Finally, the pandemic has accelerated a trend of increasing government subsidies. Many were granted to counter the negative impacts of covid restrictions on families and businesses. But once granted, subsidies can be extremely difficult to stop. More coordination will be needed over time to address the potential for trade-distorting effects caused by a wide array of subsidies, particularly those that were not quickly removed.
In all, the pandemic has highlighted a range of challenges and gaps in our trade regime rules. It made clear that times of crisis are not the right times for trying to manage complex issues. Instead, it makes more sense to try to agree on likely steps that can be taken and on coordination mechanisms in advance of the next disaster.
Fortunately, the UN’s Economic and Social Commission for Asia and the Pacific (UNESCAP) has already put together a great set of materials to help close the gaps. There is an excellent Handbook by K. Kuhlmann, online course materials, and a group of resource documents.
But perhaps most important for trade officials, there is also a model chapter on trade in times of crisis that deserves to be widely inserted into ongoing regional trade agreements. This short chapter, about a dozen pages, would help during the next disruption by providing a consistent framework for working together with members.
It does not address all avenues of trade disruption shown through the Covid-19 pandemic, including subsidies, but it does consider carefully some key weaknesses of existing processes and attempts to provide greater clarity around allowable steps to resolve and manage crisis situations.
It provides useful precision about what situations might trigger the use of the chapter provisions, helps define essential goods and services, addresses realistic challenges to trade facilitation, and provides the outline of an institutional structure to be utilized in times of crisis. Although the chapter, prepared by Runqiu Du and originally drafted by Tracey Epps, Danae Wheeler and Georgia Whelan, could be easily inserted into FTAs across the region without change, it might also be modified to better suit the specific needs and interests of members.
A trade agreement cannot, of course, solve all possible problems to the satisfaction of everyone. But a good one should tackle challenges that are known to exist and provide a framework for addressing issues in the future. The UNESCAP project, led by Yann Duval, represents an important step forward in driving a policy response that is more coherent and better suited for future challenges.
Unfortunately, the Covid-19 pandemic will not be the last type of significant trade disruption we are likely to witness. But we should take advantage of important lessons that have been learned to improve outcomes during the next crisis. This should include slotting in this model chapter into ongoing regional integration efforts and using its provisions during the next disruptive event.
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Centre. I was part of the IMP Core Group in the project and I thought it was important to spread knowledge of the Handbook and draft FTA chapter as widely as possible.***