Medical products and coronavirus: How desperation could damage the global economy

Imports and Exports | | MIC Customs Solutions |

The coronavirus is making medical supplies as valuable as precious metals - but is it also making governments more selfish in trade?

As the death toll from coronavirus continues to rise worldwide, the supply of medical products has become headline news in countries almost everywhere.

Whether or not nations have enough face masks, personal protective equipment (PPE) or, in the worst cases, ventilators, has been hotly debated by politicians and scientists.

However, a new report has shed light on how the trade of medical products has been altered by the pandemic - and how looking inward to protect domestic supply at the expense of former trade partners could significantly harm the global economy.

The document, published by the World Trade Organisation (WTO) Secretariat, looks at the treatment of medical products in regional trade agreements (RTAs) such as the EU and Central American-Dominican Republic Free Trade Agreement and how they are now being traded among preferential partners.

It also examined the difference in liberalisation rates within and outside these trade agreements. The document reports that the top ten exporters of medical products, accounting for nearly three-quarters of global exports of these products, are part of RTAs.

Furthermore, the global top ten exporters of medical products ship between 27 per cent (China) and 77 per cent (the Netherlands) to their RTA partners.

It was discovered that medical products face average tariffs of 1.6 per cent within RTAs, but that this can rise to a 3.8 per cent average tariff for medical products traded outside RTAs.

Furthermore, WTO members have eliminated tariffs on over 84 per cent of medical products for 2020 covered by RTAs.

Where RTAs did not apply, medical equipment and PPE shipped by developed nation members could face average most-favoured nation rates of 0.2 and 2.4 per cent respectively, showing the differences in cost countries could face when attempting to buy such products.

The report also found other provisions within RTAs that could either make it easier or more difficult to trade medical products.

Commenting on the findings, the WTO Secretariat said the report "highlights the need for forging mutual recognition agreements that recognise standard conformity assessments by authorities in other countries".

"The COVID-19 pandemic has also highlighted the need for greater cooperation and efforts to reduce barriers to trade, including through increased mutual recognition agreements," it added.

Meanwhile, International Monetary Fund (IMF) managing director Kristalina Georgieva and WTO director-general Roberto Azevedo have urged governments worldwide not to impose export and other trade restrictions on medical supplies out of fear and desperation.

Some countries have seen trade barriers such as customs clearance processes lifted to ensure a steady supply of items such as face masks and gloves, while others have applied bans on exports so their domestic supply is not depleted.

Under Article XI of the General Agreement on Tariffs and Trade (GATT) 1994, they are permitted to do this to prevent or relieve critical shortages.

However, Ms Georgieva and Mr Azevedo urged "caution when implementing such measures in the present circumstances", adding: "Such measures disrupt supply chains, depress production and misdirect scarce, critical products and workers away from where they are most needed."

Warning that this could have a dangerous effect on poorer nations that cannot manufacture these products themselves, they called for attention to be paid to facilitating the export of drugs, protective gear and ventilators, no matter what RTAs or FTAs countries are in.

Instead of a protectionist stance that looks only inwards, they recommended a similar approach to that taken amid the global financial crisis of 2008 - and, well before that, during the Great Depression - when economic leaders jointly committed to stop imposing new import and export restrictions for a year.

"History has taught us that keeping markets open helps everyone - especially the world's poorest people. Let's act on the lessons we have learned," Ms Georgieva and Mr Azevedo concluded.

At the beginning of 2020, no one could have predicted that face masks and surgical gloves would be seen as a vital enough commodity to attract export bans. Now, a simple virus has altered what we view as essential goods and changed the ways in which nations trade with each other.

Indeed, how the leaders of these countries act now - selfishly or in a more humanitarian way - could shape future economic and diplomatic relations once the pandemic has passed.