An Ambitious Agenda on Trade and Multilateralism is Needed for the Recovery of the Global Economy

Ingrid Berglund, Advisor on trade policy at the Confederation of Swedish Enterprise, discusses why turning inwards in the face of COVID-19 is not a winning strategy - and why a return to ambitious multilateralism is.

Currently, the world is facing a crisis unlike anything we have seen before. And without doubt, it is difficult in the middle of a crisis to discuss anything else than acute measures. This also holds true in the area of trade, where the focus in many countries has been on more urgent trade issues, such as getting goods across borders. We have, however, seen political arguments that businesses should diversify their supply chains in order to decrease dependency on a single country or region. Some have taken this argument further and suggested that reshoring production or moving it closer to home could be a suitable policy objective. This blog post will instead argue for an ambitious trade agenda driven by multilateralism.

Why Turning Inwards is not a Winning Strategy – and why Multilateralism is

It is obvious that one country alone cannot manufacture all the inputs it needs, whether it’s medicines, medical supplies or other goods. What is more, we do not know what future crises will look like. What challenges we will meet and what products we will need. Even if one country could produce all it needs on its own, it would not be the safest way to make sure everyone has access to important products. Risk spreading is a superior strategy. So, it might be wise to put our eggs in several baskets from a safer supply and delivery perspective.

Nevertheless, while a strategy of reshoring or diversification might be the right decision for some companies as a result of the crisis, such choices should be driven by businesses, not policy makers.

As my colleagues and I argue in a chapter in the e-book “COVID-19 and Trade Policy: Why Turning Inward Won’t Work” – it is only an open, global market – where goods, services, people, and data can flow across borders without unnecessary obstacles – that contributes to public health and the recovery of our economies. In the chapter, we state that more action is needed from governments to ensure trade policy contributes its full potential in tackling the crisis and protecting public health. Beyond unilateral tariff reductions and the removal of unnecessary non-tariff barriers on medicines and medical supplies, we propose that governments design measures to cope with future emergencies. This could include trade-facilitation measures for relevant agencies to speed up the clearance and release of critical goods in times of crises, as well as programmes ensuring that people with key competences, such as medical staff and technical experts, can cross borders safely when needed.

In my opinion, our most important point, however, is that the many small steps taken to tackle the crisis should move us in a multilateralising direction. The COVID-19 crisis makes it clear that the solution is not “everyone for themselves” but a common endeavor. Multilateral trade policy is a winning strategy. We therefore need to stress the importance of a multilateral system of strong and predictable trade rules to ensure that trade contributes to its fullest potential in tackling the health crisis, but also to the economic recovery around the world. Below, I will elaborate on how such a trade policy could play an important role in these two areas.

Avenues for Multilateral Cooperation

Let’s first dive into how trade policy can contribute to public health by liberalizing trade in medicines and medical supplies. The unilateral and temporary measures to liberalize trade in medicines and medical supplies should be made permanent. A plurilateral agreement among as many countries as possible should be negotiated. As has been raised by many others in the last few months, a possibility could be to expand the World Trade Organization’s (WTO) Pharmaceutical Tariff Elimination Agreement. The agreement, signed by about twenty WTO members in 1994, abolished tariffs for pharmaceutical products and certain components used to make pharmaceuticals. However, the agreement needs to be updated with new products as it has not been updated in pace with the rapid product development in this sector. Medical devices and personal protective equipment should be included. The agreement also needs to be expanded in terms of participating countries. Today, many importing countries are not parties to the agreement. Furthermore, governments should explore the possibility to expand the agreement beyond tariff reductions, such as rules on export restrictions proposed by Evenett and Winters, but issues such as non-tariff barriers and services could also be explored. Expanding the agreement would be beneficial from a general public health perspective, but also if subsequent waves of COVID-19 or similar virus infections occur.

Obviously, it is not only a matter of medical supplies – trade is also a critical component in the recovery of our economies, and we must recommit ourselves to upholding existing multilateral trade rules. Once countries are over the most acute phase of tackling the health crisis, the recovery of our economies begins. This will happen at different times for different countries, but the challenges will largely be the same. As a result of the crisis, the global economy will inevitably undergo major changes. Closed borders, lack of inputs to production and broken value chains have already led to bankruptcies and closures of companies around the world. This in turn will lead to higher levels of unemployment, lower tax revenues, poorer public finances and most likely further threats from governments to introduce protectionist measures to shield domestic industries from competition.

Revitalized multilateral cooperation on trade must therefore go beyond facilitating trade in medicines and medical supplies. As stated in the introduction, it is only an open market that can provide consumers with a variety of quality goods and services at competitive prices.

International trade will have to be at the core in promoting a sustainable economic recovery that enables companies to rebuild the value chains that have been damaged by the crisis.

Challenges and Opportunities for Multilateral Cooperation

When discussing revitalized multilateral cooperation, we cannot avoid addressing problems that were evident already before the COVID-19 crisis. The WTO needs to be reformed and modernized. This has become even more evident during this crisis when protectionist winds are becoming more prominent, illustrated among other things by trade restrictions being introduced by governments around the world, as well as arguments about self-sufficiency. Hence, the importance of pursuing WTO reform has never been more relevant and pressing. Saving the dispute settlement system is the number one priority, but we also need to focus on facilitating trade by modernizing the trade rules. The WTO rule book needs to be updated for it to become more relevant for today’s realities. Businesses as well as governments know that global value chains, servicification and digitalization are here to stay, but the problem is that trade rules have not been sufficiently developed over the past two decades.

Digital trade is perhaps the most evident example of this. The digitalization of production and trade has been obvious for many years. Lockdowns and restrictions during the crisis have strengthened the critical role of the digital economy, for governments, businesses and individuals. This development has emphasized the need for international rules on digital trade and gives even more leverage to the e-commerce negotiations at the WTO. Concluding the talks should be a priority. But we also need to think beyond e-commerce. Digital trade is just one part of the new common rules that we need. The negotiating agenda at the WTO should also include new, ambitious rules on areas such as investment and industrial subsidies.

So obviously, trade policy has a large role to play when it comes to contributing to both tackling the global health crisis as well as to the recovery of the global economy. Governments and businesses, in developed and developing countries, must therefore demonstrate the importance of the multilateral trading system and of common trade rules. Governments should refrain from imposing trade restrictions and falling for arguments about self-sufficiency. And particularly because the WTO is global, it does provide a forum for negotiating solutions to the common challenges brought by the crisis and to the future we want to see. Trade and global value chains should not be considered the problem when they are actually part of the solution.

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