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THE IMPACT OF COVID -19 ON GLOBAL TRADE AND EXPORT -A STUDY BASED ON LIMITS UNDER INTERNATIONAL lAW
Author: Anuj, II year of LLM (Corporate & Business Law) from KIIT School of Law, Bhubaneswar
This covid-19 virus has wreaked havoc on the world economy, particularly trade. To stop it from spreading, world economies hurriedly imposed state-wide lockdowns, resulting in a sharp reduction in supply and a massive increase in demand for "pandemic-special commodities." The virus created an atmosphere of panic, anxiety, and uncertainty, prompting countries to stockpile products such as medical equipment and supplies and enact different export prohibitions and restrictions, shaking the foundations of global trade.Export bans have major effects, particularly for poor countries that are unable to secure vital supplies for their people to battle the infection. The unilateral introduction of import tariffs by a country is within the scope of the present WTO and GATT legislation. What is concerning, however, is the international community's lack of collaboration and contempt for import-dependent countries when imposing such limitations. The purpose of this study is to demonstrate how to export limitations harm global trade and the economy. It would also analyze the insufficiency and flaws in international trade regulations in dealing with a pandemic-like situation, as well as how the WTO and the international community can avoid such a problem in the future.
Key Words: - Covid -19, Economy, Export, GATT, Global Trade, WTO,
The Coronavirus has caused havoc all across the world, and it may be the worst humanitarian calamity since World War II. The World Health Organization (WHO) has designated Covid-19 a pandemic, affecting millions of people globally. To stop it from spreading, governments imposed a state-wide curfew and a series of social isolation measures. Trade and travel were completely prohibited. However, such constraints have proven to be extremely harmful to the world, as the global economic system has become amorphous. Economic activity ceased, global aggregate demand fell, supply networks collapsed, and the world faced an uncertain and bleak future.To make matters worse, the epidemic struck at a time when the global economic system was already in disarray due to continuous trade protectionism and tariff wars, economic penalties, inconclusive WTO sessions, and a lack of confidence and collaboration in the international community.
Covid-19 has shaken the world's economic fundamentals, especially trade. The global economic meltdown resulted in a drastic reduction in supply and a massive increase in demand for products critical to battling the infection. Because of the pandemic, the International Monetary Fund (IMF) predicts negative per capita income growth for many nations in 2020.Furthermore, the World Commerce Organization (WTO) predicted a severe drop in global trade between 13% and 32% in 2020, possibly the largest drop since the Depression Of the 1930s.With the pandemic at its apex, there is a global hunt for medical supplies such as Protective Equipment (PPE), Masks, Sanitizers, medications, and other products, and governments, fearful of not being able to get these in the future, turn to mass hoarding. They had also imposed a slew of export bans and restrictions that threatened global trade, compounding the problem.The Covid-19 controversy has exposed the serious and systematic flaws in international trade rules and regulatory organizations. No one could have predicted the necessity for trade to the extent that it could save lives until this catastrophe arrived. The export of life-saving medical aid to France and Italy was prohibited by Germany. Even the European Union, which boasts the most prosperous European single market, was unable to ensure intra-EU commerce in critical medical supplies. Because international trade and investment rely heavily on individual cross-border mobility, despite technology developments, commodities transportation faces numerous challenges. Importing and exporting commodities can be difficult, particularly for Least Developed Countries (LDCs).These challenges are resulting in significant losses. To secure necessities for their citizens, all countries rely on global commerce and value chains. The World Trade Organization (WTO) requires a wake-up call to solve current issues and adopt measures that inspire confidence and trust among world leaders.
EXPORT RESTRICTIONS AND THEIR IMPACT ON THE ECONOMY
As a result of the Covid-19 situation, national governments have been obliged to impose export restrictions and bans to handle the immediate health issue and the primary challenge of securing needed products. On April 23, 2020, it was reported that as many as 80 nations and distinct customs territories have approved export restrictions and restrictive policies, including 46 WTO members (72 if EU members are counted separately) and 8 non-members.The WCO Organizationshad identified Covid-19 test kits, personal protective equipment (PPE), thermometers, disinfectants, and other items as useful in fighting the virus. However, over 17 countries have placed limitations on the export of food.The majority of these exporting bans and other restrictions went into effect in May 2020, covering about 73 percent of global pandemic product trade. The frequency of export controls and the percentage of commodities imported that these restrictions target varies by area. Africa has the largest percentage with 74 percent, followed by Asia-Pacific with 67 percent and the Americas with 60 percent.Healthcare tools in vast quantities are required to meet the needs of domestic healthcare personnel and patients. Because of state-wide lockdowns that caused supply chain risk and logical limits, sovereigns feared an unclear future that would leave them unable to provide such necessities to their citizens, which is why export prohibitions were enacted. For example, the European Union adopted a prior licensing process for the export of safety equipment in March 2020.Exports of certain foods and medical supplies, such as disinfectants, have been prohibited by the Eurasian Economic Union (EEU). The United Kingdom, the United States, and India were eager to follow suit, banning protective gear, testing kits, and some pharmaceuticals. Rice, wheat grain, and flour export bans have been enforced by Vietnam, Russia, and Kazakhstan. However, it is believed that such decisions could have a significant impact on import-dependent countries like Bangladesh.The majority of governments who imposed these limits did so in anticipation of a serious scarcity of necessary medical supplies or food, to make such things more accessible to their citizens. While this is acceptable, what is troubling is the absence of international collaboration in enacting such measures, which causes a supply shock for many countries that rely on imports to meet their basic needs.
Studies have shown that export limitations have ripple effects throughout the global economy, altering both the quantity and volatility of supply and pricing, after analyzing the consequences of export controls applied during previous crises. When a country faces a crisis or an emergency, it is most likely to impose export bans to ensure that sufficient stock is available for the domestic people at a lower price than the world price. On the other hand, export bans, cause more harm than good and have numerous harmful implications.
Whenever a country, particularly a significant exporter, prohibits or restricts the export of a product, the global supply for that thing decreases, and the global price rises. As a result, importers, particularly those from third-world nations with low manufacturing capacity, face difficulties in obtaining such goods. Furthermore, this method is too expensive for exporters.Export limitations often result in a relative increase in the overseas price while lowering the home price of a product. As a result, when domestic prices decline, businesses have less motivation to produce items and sell them domestically. Another scenario could be that they try to sneak the products out of the country and sell them in foreign countries, which would be more profitable due to a higher price on the global market. Implementing export limitations may thus be futile, as it may result in a boomerang effect, reducing the supply of commodities in the exact nation that enacts export restrictions to secure them. Export limits can also have a domino effect, causing other exporters to adopt similar export prohibitions to maintain low local prices. This domino effect was intensified due to the worldwide dimension of the Covid-19 crisis.
When a neighboring country or a major trading partner enacts similar policies, a country may feel compelled to follow suit. As a result, prices soar, failing to achieve the goal for which they were created. Export regulations complicate a lot of things for the exporters. Such actions can sometimes result in trade partners imposing retaliatory limits on input supply, disrupting the production chain's continuity.In the long run, they may lose market share because importing countries would strive to be self-sufficient and encourage domestic manufacturing as a hedge against future crises like Covid-19, which might throw supply chains into chaos.Aside from all of these consequences, export restrictions in the context of the epidemic have resulted in severe disruptions in logistics, distribution, and worldwide transportation services. In the absence of numerous regulations prohibiting travel, particularly foreign travel, air passenger traffic has reached an all-time low, with no indications of recovery in sight. The Airports Council International (ACI) recently released global data showing a 41.8 percent drop in global passenger traffic in the first four months of 2020.
As a result, air freight capacity has decreased, driving up the cost of air travel. There is a serious problem because most countries rely on air cargo to transport goods around the world. Most significantly, when a country's health resources are limited, the only effective approach is to seek assistance from other countries in obtaining medical supplies.Export bans in one area may have unintended consequences in other sectors, causing greater damage than is necessary to combat the virus. When some countries-imposed export restrictions on food grains in the aftermath of the epidemic, fearing a severe shortage, other nations quickly followed suit, imposing similar measures.If importers continue to have difficulty obtaining essential inputs owing to export restrictions, various regional and worldwide supply networks may be disrupted. In the long run, supply networks will become less efficient, and prices will rise.In today's globe, no country is completely self-sufficient in terms of virus-related products. If each country begins to hold back the items it generates, no country will have enough medical supplies to confront the pandemic. The WTO and the IMF issued a joint statement on April 24, 2020, emphasizing the importance of countries exercising caution while introducing export restrictions:
"Implementing export limits can be harmful in the long run. In an emergency, something that makes sense to a sovereign can be catastrophically destructive to global interests. Such tactics cause supply networks and production to break down when they are most required. All of this is likely to prolong and exacerbate the health-economic crisis, with the poorest and most vulnerable countries bearing the brunt of the consequences."
AN INEFFECTIVE BYSTANDER IN INTERNATIONAL LAW
A) Trade laws of the EU
The European Union, an economic and political coalition of 27 European countries, is built on inter-governmental negotiation to achieve a shared objective for all members. The EU's trading policy, which has the dimensions of a supranational organization and an advanced integrated system, also experienced a setback during the Covid-19 issue. The EU's exports and imports have come to a halt. Member countries like Germany and France began imposing unilateral export and import restrictions on member countries as well as third-world countries affected by the virus.Article XX (b) and (j) of the General Agreement on Tariffs and Trade (GATT) exempts a member country from GATT's general principles if the limits imposed are not arbitrary and justified for reasons such as "the protection of health and life."On March 26, 2020, EU Commission President Ursula Von Der Leyen stated in the European Parliament, expressing her concern over the Union's continuous trade-restrictive activities: "A borderless crisis cannot be solved by erecting barriers between us." Nonetheless, several European countries initially replied in this manner, which made little sense. This is because no single member state is capable of meeting the demands for essential medical supplies and equipment. "There isn't one."Ursula Von Der Leyen announced the new set of export control rules for the export of hospital devices to third-world nations on March 15, 2020, which was only two weeks ago. In the implementing regulation (EU) 2020/402 of 14 March 2020, it was mandated that medical equipment be exported outside the EU. This restriction applied not only to PPEs made in the EU but to all PPEs, regardless of where they were made, as long as they were within the union's territorial authority.
Five days later, on March 19, 2020, the European Free Trade Association (EFTA) states were exempted from several export restrictions by Commission Implementing Regulation (EU) 2020/426, although the same exemption was not given to other third-world countries.
To summarise, export restrictions to other EU member nations are justified under EU law, and export restrictions to other non-member countries are also justified under WTO law, although the economic rationale and moral and political justifications are highly controversial.
B) WTO and GATT Agreements
The WTO is the only intergovernmental body in which countries assign negotiated powers after their parliaments have ratified them. The World Trade Organization (WTO) is the only agency that governs international trade between nations. WTO rules and the General Agreement on Tariffs and Trade (GATT), which was signed in 1947, make up a significant portion of international trade law. The main goal of the WTO and GATT is to ensure free commerce between countries, however export restrictions imposed unilaterally by individual countries resulted in the establishment of barriers and impeded this flow.The WTO has a long-standing policy prohibiting the use of quantitative export restrictions. Article XI(1) of the GATT expressly forbids quantitative export restrictions.
"A part from duties, taxes, and other charges, no prohibition or restriction shall be instituted or maintained by any party to a contract on the importation of any product belonging to the territory of the other contracting party or on the exportation of any product destined for the territory of the other contracting party, whether implemented through quotas, import or export licenses, or other measures."
This section includes an important clarification: Since free trade is unreachable in the short term, tariffs are favoured and should be the accepted form of protection; however, any non-tariff limitations are completely forbidden.In other words, limiting imports to secure a home market profit or to rationalize foreign exchange, as well as limiting exports to meet domestic demand, are both in violation of Article XI (1). As a result, the EU's export limitations, which have erected a barrier to the export of necessary medical equipment, can be inferred to be unconstitutional under GATT Article XI (1).
Article XI, on the other hand, is subject to several exceptions and carve-outs. Article XI, paragraph 2(a), states that export restrictions would be permissible if adopted for a limited time to alleviate a critical scarcity of foodstuffs or other vital items in the exporting country. However, it must be noted that for a country to benefit from this exception, the restrictive measures imposed on the other country must not be discriminatory or arbitrary in the sense of GATT Article XIII. Furthermore, GATT Article XX (b) and (j) empower a member country to impose export bans on specific products if the measure is required to "defend human life or property."Since the pandemic had created a public health emergency and threatened the lives of millions of people, governments have used this article to justify their actions.
In terms of the limitation on the circulation of pandemic commodities, international health law takes a similar approach and defers to WTO-established trade norms. The WHO's Worldwide Health Regulation, enacted in 2005, gives countries the authority to impose import and export restrictions in response to specific public health threats or international health emergencies. To avoid accountability under the GATT and WTO's international trade law, countries must comply with international health regulations as well as international commercial law. In other words, the GATT/WTO regulations continue to apply even when countries take health-related measures.Article 12 of the Agreement on Agriculture, headed "Disciplines on Export Prohibitions and Limitations," applies whenever a country imposes export bans or other restrictions on commodities for a brief term in conformity with the exception provided under Article XI 2(a) of the GATT. It specifies two requirements that must be completed in this situation. First and foremost, the repercussions that such restrictions may have on the importing state should be carefully considered. Second, before imposing any such limitation, the member state must notify the Committee on Agriculture of the duration and type of restriction. And, upon request, such a member state must furnish the other state with information on the restriction.Food and other medical products restrictions can be applied under the general exemption granted by Article XX, but the limitation must not be arbitrary or discriminating against any of the member states.Many governments did not follow this rule while enacting export prohibitions and neglected to notify the international community of the trade restrictions. Only 13 nations (39 if EU member states are counted separately) had previously provided information on trade restrictions imposed as a result of Covid-19. "Albania, Australia, Bangladesh, Colombia, Costa Rica, Egypt, the European Union, Georgia, the Republic of Korea, the Kyrgyz Republic, North Macedonia, Thailand, and Ukraine" are just a few of the countries that have imposed restrictions based on the underlying provisions of Article XI(2)(a) and Article XX (b) & (c) (j).The ‘Kyrgyz Republic, North Macedonia, and Thailand’ are among the nations that have submitted limit notification under Article 12 of the Agricultural Agreement.
The analysis of EU and WTO standards shows that international laws do not ensure access to the existence of medical drugs and equipment in situations like these, which can be attributed to the laws' contradictory provisions and inconsistency. Countries can use the exceptions under Article XI (2)(a), XX(b) &(J), and Article XII to avoid liability under GATT Article XI(1). As a result, even though the constraints are perfect from a legal standpoint, they fail to pass the polity, morality, and reasonableness tests.The virus's unexpected nature combined with unilateral trade restrictions created hurdles in international trade, which runs counter to the WTO's motto of "barrier-free trade." Many developing countries are hard to hurt by trade restrictions because they lack the indigenous capacity to manufacture life-saving pharmaceuticals and technology in these difficult times. Because the situation is unique, the WTO lacks a clear method to control trade-related issues. New and powerful mechanisms are needed.
REVISING OBJECTIVES AND FIXING FLAWS FOR BETTER RESULTS
The COVID-19 pandemic's emergency-like situation has proven that WTO regulations are not pandemic-proof and have failed to solve the global economy's and trade's continued disruption. Countries no longer have the political will to follow international rules. Most countries imposed export restrictions haphazardly, putting their national requirements and geopolitical interests first. In countries that rely significantly on global supply networks, the health issue could worsen. The international community must work to build a coordinated response and, in the long run, better prepare for future crises such as Covid-19.This crisis has also taught the WTO a lot. It must develop a "pandemic special" set of rules with the least amount of trade disruption. It could be preferable if it included a particular rule requiring all members to preserve open trade on key products. However, this can only happen if members agree that, in the face of an enormous global health crisis, urgent trade liberalization is required.
Before adopting an export embargo, countries should constantly consider the impact it will have on importing countries. If they enact a restriction on anticipating "critical shortages" of important products, they should carefully examine the "critical shortage" that may or may not occur, and refrain from stockpiling resources in contravention of trade regulations. WTO members should establish a forum with individuals from the bureaucracy and industrial sectors to provide governments with important information on supply chains and the effects of any trade restrictions.As we have seen, export restrictions prevent many countries, particularly the least developed, from receiving critical medical supplies when they are most needed. Furthermore, trade restrictions can be counterproductive for the country enforcing them and strain international cooperation, which is why WTO Director-General Roberto Azevêdo praised a G20 agreement to "ensure the flow of essential agricultural and medical products, as well as other goods and services across borders."During such circumstances, international coordination is essential to guarantee that trade is not hampered. In such circumstances, countries must assist one another and recognize their political and moral responsibilities to the global community. They should not withhold necessary supplies, and they should consider it a humanitarian measure rather than a homeland security or health issue.One of the primary requirements for Member nations to trade freely is transparency. When limits are imposed unilaterally, this precise requirement is not met. To maintain openness and legal clarity, additional bureaucracy in commerce should be avoided. To avoid further blockages, WTO members should register any new restrictive measures as soon as possible, and the WTO should process and publish them transparently.
Rather than relying on other countries, governments, particularly LDCs, should invest in research and development and endeavor to manufacture medical equipment domestically. This will assist build long-term resilience and protect against trade-distorting measures. Members should also abolish any trade barriers and refrain from erecting new ones in critical products during such times of despair. Members of the G20 agreed on March 30, 2020, that "if emergency measures are required to combat COVID-19, they must be limited, reasonable, transparent, and transitory, and must be by WTO norms."The virus's effects and consequences would be thought of for a long time. It has introduced the entire world community to challenges that are so complex that national policies alone will not be able to address them. As a result, coordinated measures are required to ensure the availability of essential products, including the Covid-19 vaccine, and to send a message of confidence to the global economy.
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