What are the potential drawbacks to placing a ban on the export of advanced technologies?

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 honour their commitments to notify trade-related measures taken in response to COVID-19 to the World Trade Organisation (WTO). The OECD is sharing information on trade-related country actions on COVID-19 with WTO colleagues, and assessing the likely impact of these actions to help support policy makers dealing with the crisis.

Building on our annual Monitoring and Evaluation of Agricultural Policies we are tracking and assessing the impact of country measures in relation to agrifood production and trade in response to COVID-19. We are bringing this information to AMIS (Agricultural Market Information System), where we work with other international organisations and governments to ensure accurate, up-to-date information on market developments and country policies in critical commodities for the global food system.1

An important priority is keeping the key supply chains for essential goods for the crisis – including medical supplies, food products and ICT goods and services – open and functioning. However, we are starting to see a number of challenges to keeping these supply chains going related to the business of trade. For example

• Cancellation of passenger flights linked to travel bans has limited the availability of air cargo (Figure 2) while urgent shipping of essential goods has increased demand, resulting in increases in the price of air cargo (compared to October 2019 air freight costs are up by about 30% between the People’s Republic of China (hereafter “China”) and North America and by over 60% on some important Europe-North America routes) (Curran, 2020[1]) Delivery times have also increased. This matters for some time-sensitive medical supplies, but also for some high value food trade.

• Important shipping ports reported year-on-year drops in cargo between 10% and 20% in February (Baschuk, 2020[2]). Over 50 countries have changed port protocols, ranging from port closure and quarantine measures to additional documentation requirements and examination. That said, some countries have also set up “green lanes” at ports of entry and border crossings, to accelerate the processing of cargo shipments.

• At the time the virus struck, large numbers of shipping containers were in Chinese ports, and restrictions on their movement have led to a shortage that has seen the price of containers rise (in some cases considerably), with flow-on effects for the price of cargo, including food products.

• Lockdowns are also impacting the availability of labour to unload ships at ports (notably in countries where this is less automated) or raised costs due to increased protective measures for workers.

• More generally, all supply chains are being affected by the need to ensure additional health and safety measures for all participants in the supply chain (which affect costs and time).

• Limits on mobility of people and lockdowns are affecting a variety of trade processes, from physical inspections of goods for SPS, to testing and certification for TBT, to changing how anti-dumping investigations are conducted.

All of these are adding to the time and costs of international trade on products that matter. They will require co-ordinated 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.

An immediate issue is facilitating medical supplies necessary to tackle COVID-19, many of which are produced across a number of countries and for which trade is the means of ensuring global supply. For example, at the onset of the crisis, China was the main manufacturer of surgical masks, accounting for about one-half of world capacity. Yet in January, this was not enough to meet demand; China stopped exporting masks and imported 56 million masks in the first week of January; masks were also donated to China by some countries. In the midst of the crisis, Chinese demand was estimated at 240 million masks per day (more than ten times its manufacturing capacity). China increased production from around 20 million masks per day to around 116 million per day at the end of February and is now exporting masks to other countries.2

Figure 2. Sea and air cargo are dropping sharply

Keeping the trade in essential medical supplies flowing means removing barriers such as tariffs on medical goods essential for combatting COVID-19 (e.g. several countries maintain tariffs of up to 10% on COVID test kits) (Evenett, 2020[3]) as a number of countries have already done. It 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 (see below).

There are particular issues with keeping food supply chains flowing. In addition to the impacts of reduced air and sea cargo possibilities, are additional challenges related to the risk of food loss and waste through delays to handling difficulties, and the sudden collapse in demand from restaurants and hotels. There is also a need to ensure that food supply flows to quarantined areas, and that appropriate biosecurity arrangements are in place, requiring changes to how food is produced, consumed and distributed – while also ensuring that COVID-19 related sanitary and phytosanitary (SPS) requirements remain science based and not unnecessarily restrictive. While at present global food markets remain well-balanced and cereal stocks are high (AMIS, 2020[4]), it will be important to continue to closely monitor developments, given accumulating risks such as the lack of seasonal labour for planting and harvesting crops.

In the short term, there are some practical things we can do to keep trade flowing and to increase how trade can support the fight against COVID-19, including:

• Speeding up border checks for medical products and food and minimising the need for physical interaction between Customs and other border officials and traders at borders, by digitising processes to the extent possible. Also important will be efforts to expedite standard formalities to leave room for any necessary additional COVID-19 controls. Efforts to boost international co-operation on risk management will also be important in tackling the virus and facilitating movement of goods, as will continued assistance for lower income countries.

• Making it cheaper and easier for people to stay connected to jobs, markets – and each other – by: reducing tariffs on information and communication technology goods and measures affecting access to digitally enabled services; temporarily increasing de minimis thresholds to cut delays in cross-border e-commerce; and keeping trade moving without physical contact through enacting regulations to enable e-payments, e-signatures and e-contracts.

• Helping medical researchers co-operate on COVID-19 through enabling data flows. Access to detailed health information is critical to finding a cure for COVID-19. Yet health data are often subject to strict localisation requirements and cross-border data flow restrictions. Governments could enable processing and cross-border transfer of sensitive data to monitor epidemics, and promote the use of restricted access and secure sandboxes to pool health data on COVID-19.

There are many unavoidable costs in the current pandemic; all the more reason to avoid actions that add to costs for traders and consumers. Chief among these is the need to avoid export restrictions on essential goods, such as medical equipment and, especially, food products. Currently, more than 60 countries3 have restricted exports of essential goods and increasingly agriculture and food products.

The lesson of the food price crisis of 2007-08 is that export restrictions are a recipe for self-inflicted harm, undermining food security for everyone. Experience has shown that export restrictions temporarily lower domestic prices and raise availability, but they also discourage domestic production and so any benefit tends to be short-lived. Critically, by diverting supplies from world markets, they put upward pressure on international prices, which harms other countries – in particular those most dependent on international markets for food. Export restrictions risk undermining confidence in international markets and can precipitate hoarding and panic buying, further accentuating problems in import-dependent countries. Ultimately, nobody benefits.

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. 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.

While there is not an immediate threat to global supplies of basic foodstuffs, there is the potential for specific food supply chains to be severely disrupted, including from lack of seasonal workers for planting or harvesting key crops, logistics constraints, and additional SPS and technical measures. Vigilance will be required to ensure that crisis- or policy-induced risk factors do not cause disruptions in supply, in particular if the containment measures related to COVID-19 are long-lived.

The global market situation for medical supplies is very different; there is a critical need to increase the overall global supply of essential medical supplies for combatting COVID-19 such as ventilators and masks. Governments need to invest urgently in boosting production capacity, including in co-operation with the private sector, for local, regional and global markets.

Some governments are taking measures designed to ensure supply for their own population that have the effect of limiting supply for others. Export restrictions often take the form of special licensing requirements or outright bans on the export of certain products. Other measures include guaranteed purchase or requisitioning of goods. These are difficult issues. While governments rightly are concerned to protect their own populations, the effect on other countries – and thus on global efforts to contain the virus and prevent damaging second- or third-wave recurrences – can be severe.

Some countries are not able to produce their own medical supplies in sufficient quantities – or cost effectively. This is especially the case as the virus starts to take hold in lower income countries, where the priority for limited health budgets should not be building domestic manufacturing capacity. For these countries – as has been the case for others that have experienced the virus to date – trade is essential.

Indeed, areas already isolated due to the virus would have been worse off if they had to rely on the local economy to guarantee supplies of medical equipment, food and other necessities and even those countries with production capacity in medical equipment have struggled to meet demand. In the height of COVID-19 outbreaks, even countries with significant manufacturing capacity may not be able to fully utilise it due to labour shortages, or mobility restrictions. Moreover, even domestic manufacture of equipment can rely on imported inputs; the danger of beggar-thy-neighbour policies is that you are also your neighbour’s neighbour.

But if countries are to avoid these policies, they need to be sure that global markets will indeed supply the needed goods. Transparency and global dialogue and co-operation are essential in building the confidence in global supply. If export restrictions on medical supplies cannot be avoided entirely in the current political context, agreements to place strict conditions on their temporary use are vital.

More broadly, to maintain confidence in global markets and co-operation, there is a need to avoid further escalation in ongoing trade tensions. With firms rocked by the collapse in demand and the ongoing uncertainty regarding the duration and severity of COVID-19 and associated containment measures, now is also not the time to impose further costs, including through unnecessary policy uncertainty. Imposing additional costs on firms and consumers through tariffs not only causes hardship for those already suffering from lost income due to the crisis, but also risks increasing the size of the government assistance needed to support those same firms and consumers. A positive step in boosting confidence and reducing burdens would be for governments to commit not to impose new tariffs or trade restrictive measures.

While trade was one of the first victims of the global economic crisis in 2008, new trade restricting measures affected only about 1% of world imports. At that time, G20 leaders committed to refrain from protectionist measures and to uphold the rules-based trading system, and WTO trade rules created some certainty for businesses and stabilised the system by placing a ceiling on tariff measures. While there are some differences, as well as similarities, in the current crisis (see Box), the uncertain economic environment going into today’s crisis increases the need for a commitment to rules-based trade.

Lessons from the Global Economic Crisis?

As policy makers confront the significant challenge of COVID-19, many are asking whether there are lessons from the experience of the global economic crisis, and to what extent the crises may be similar. Some examples of the similarities and differences are below.

Differences

• Not just about confidence effects, economic activity is being shut down.

• Widespread across many sectors, simultaneously and sometimes instantaneously

• Requires large government investments – especially in the health sector, but also in social protection given widespread job losses

• Mobility restrictions limit some of the automatic stabilisers/offsetting actions (informal work, share economy) and impose additional costs

• Particular issues with medical equipment and biosecurity for food.

• More services-driven, given the limitations on physical contact and widespread closure of key service sectors (tourism, travel and entertainment).

• This crisis is having a disproportionate impact on MSMEs.

• Greater disruption to production leading to pressure on supply chains.

Similarities

• This crisis is coming in waves, as knock-on effects from problems in one sector or country rebound and create new problems in other sectors (e.g. between the financial sector and the real economy) or countries. Second- and third-order effects of policy actions can be unpredictable but important.

• This will also be an employment crisis, with significant implications for supporting workers in mass unemployment

• The crisis is having staggered effects globally, with Africa likely again to be last to experience (but also least equipped).

• Governments are facing the challenge of having to act rapidly and at a large scale across a wide range of policy areas.

• Governments have to think immediate term, and longer term at the same time.

While countries are necessarily focused on ensuring the health and economic security of their people today, the OECD can play a particularly important role in looking ahead and, in light of past and current experiences, contribute to helping governments ensure a recovery that is robust, widespread, and sustainable. Some key issues, and areas of OECD work, are highlighted below.