COVID-19-Driven Trade Decisions Must Ensure Free Flow of Goods

April 10, 2020 by Dan McCue

WASHINGTON – Despite the continued uncertainties related to the COVID-19 virus, government officials trying to beat back the pandemic need to resist the temptation to erect new barriers to trade, an international trade watchdog said Friday.

Further, the report said, lawmakers need to take care now to ensure that today’s stimulus packages don’t distort the world economy for years to come.

The analysis comes from the Organization for Economic Cooperation and Development, an intergovernmental organization founded in the early 1960s to stimulate economic progress and world trade.

According to the Paris, France-based OECD, keeping the world’s trade flows moving is essential both for saving lives now and restarting national economies as the pandemic subsides.

To accomplish both, the organization says, trade partners need to improve transparency by clearly explaining their trade-related policy actions and intentions; avoid making things worse, through unnecessary export restrictions and other trade barriers; and, even in the midst of the crisis, think beyond the immediate.

“Government support today needs to be delivered in a way that ensures it serves the public interest, not vested interests, and avoids becoming tomorrow’s market distortions,” the report says.

Last month, the OECD issued an interim economic report that saw global growth being halved, dropping to 1.5%, due to the coronavirus outbreak.

It now says that conclusion was optimistic. The organization now estimates that for each month the necessary containment measures continue, the drop in national output will be equivalent to a decline in annual GDP growth of up to 2 percentage points.

Moreover, it says, the costs to the global economy from support packages, through central banks and fiscal actions, are very significant and likely to have long-lasting and complex effects on management of sovereign and corporate debt.

OECD says keeping trade flowing in the current challenging environment will require international cooperation and trust.

The world’s leaders need to trust that the market will supply essential goods, that their countries don’t have to impose export restrictions, and that the imports they receive do not pose health risks.

“This is a particular challenge at a time of trade tensions, where the international trading system was already subject to an increased number of new restrictions and distortions, from tariff increases among major traders, to significant government support in key sectors,” the report says. “Efforts at dialogue to manage and prevent tensions through ongoing negotiations are now complicated by mobility restrictions.”

To overcome the challenges, the OECD says a strong, shared, transparent information base is critical in underpinning sound national policy responses and the international co-operation to keep trade flowing.

“It will be critical that countries honor their commitments to notify trade-related measures taken in response to COVID-19 to the World Trade Organization,” the report says.

Next, it is critical that nations keep global supply chains going, especially for essential goods like food and medicine.

The OECD notes there are already a number of challenges in this regard, amid the cancellation of many passenger flights. Many perishable and time sensitive goods travel in the cargo holds of passenger aircraft.

Not only are flights now scarcer, but the increased demand for medical supplies is resulting in price increases of up to 60% on routes between North America and Europe, and by 30% between North America and China.

Another concern is that when the virus struck, large numbers of the world’s shipping containers were sitting in Chinese ports. Restrictions on their movement have led to a shortage that has seen an increase in the price of available containers, and consequently, the food and other goods shipped in them.

Compounding the situation is the fact over 50 countries have changed their port protocols due to the outbreak, taking steps ranging from port closure and quarantine measures to additional documentation requirements and examination.

Stay at home orders are also impacting the availability of labor to move cargo, creating further delays.

These issues, the report says, “will require coordinated action amongst governments – and with the private sector – to find solutions to the logistical constraints affecting the ability to get essential products where they are needed most.”

When it comes to essential medical supplies, the OECD said getting them where they need to go means removing trade barriers such as tariffs. It notes that as of this week, several countries are still maintaining tariffs of up to 10% on COVID-19 test kits.

It also means “expediting certification procedures to allow new products to be traded as soon as possible and ensuring that technical requirements are science-based and do not unnecessarily restrict trade.”

“Finally, it means enhanced trade facilitation to keep goods moving as quickly as possible – including identifying key actions needed to ensure smooth customs procedures with limited human intervention,” the report says.

The report goes on to urge lawmakers to simply avoid making matters worse.

“There is currently no supply problem in global agriculture and food markets; indeed, at present, stocks are strong and prices look set to stay low,” the report says. “However, if governments engage in export restrictions or if individuals, firms or countries engage in panic buying or hoarding there is a risk of creating an avoidable problem now.”

The OECD paper closes by reminding officials confronting the pandemic to look beyond the immediate.

“Policy actions now could have a long life,” the report says.

“Governments are – necessarily and rightly – providing huge amounts of support to prevent the COVID-19 crisis from destroying livelihoods, businesses and production capacity,” it continues. “But once the waters ebb, governments will need to take a careful look at the measures in place to ensure that they have not become sources of unfair competition and distortions in the global economy.

“While this is tomorrow’s problem, the way such support is designed now will affect the shape of the global economy to come, and whether that economy benefits – and is seen to benefit – everyone,” it says.

The OECD says as governments provide support through the financial system in the form of below-market loans and government equity, lawmakers need to take great care in how they bestow this relief and how they will unwind once the crisis passes.

For all this, the OECD concludes the report on a hopeful note.

“The current crisis offers an opportunity to develop readiness for future pandemics,” it says. “In addition to national measures to ensure supply, there may be scope for an international agreement to provide greater predictability and certainty on availability of key supplies in international markets and build confidence that trade will keep flowing to support the management of future pandemics.”

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